report,summary
"To obtain information on the number and kinds of issues identified by the FSCPE and bureau analysts and to determine how the bureau used the information developed during the Full Count Review program, we analyzed the work papers submitted by FSCPE members and other participants in the Full Count Review program. We also analyzed data from the bureau’s Count Review Information System, a database that the bureau used to track issues flagged during the review process. We did not independently verify the information it contained. To identify lessons learned for future improvements, we examined bureau training manuals, statements of work, process models, and other documents that described the objectives, processes, and decision-making criteria. We also reviewed the results of a survey the bureau conducted of FSCPE members that asked them to rate their experience with Full Count Review processes and tools, bureau staff, and the overall effectiveness of the Full Count Review program. In addition, we interviewed managers in the bureau’s Population Division and other officials responsible for implementing the Full Count Review program, as well as three FSCPE members. We performed our audit in Washington, D.C., and the bureau’s headquarters in Suitland, Maryland, between May 2001 and April 2002. Our work was done in accordance with generally accepted government auditing standards. On April 26, 2002, we requested comments on a draft of this report from the Secretary of Commerce. The Secretary forwarded the bureau’s written comments on June 11, 2002 (see app. II). We address them in the “Agency Comments and Evaluation” section of this report. Accurate census results are critical because the data are used to reapportion seats in the House of Representatives and for congressional redistricting. Moreover, census data remain an important element in allocating federal aid to state and local governments. With billions of dollars at stake, the data are scrutinized intensely for accuracy. To help ensure the accuracy of census data, the bureau conducted a number of quality assurance programs throughout the course of the census. One such program was the Full Count Review program, which was designed to rapidly examine, rectify if possible, and clear census data files and products for subsequent processing or public release. The bureau expected data analysts to identify data discrepancies, anomalies, and other data “issues” by checking the data for its overall reasonableness, as well as for its consistency with historical and demographic data, and other census data products. The Full Count Review program ran from June 2000 through March 2001. According to bureau officials, because the bureau could not complete the Full Count Review workload without a costly staff increase, some of the analysts’ work was contracted to members of the FSCPE, an organization composed of state demographers that works with the bureau to ensure accurate state and local population estimates. The bureau contracted with 53 FSCPE members who reviewed data for 39 states and Puerto Rico. Bureau employees reviewed data for the 11 remaining states and the District of Columbia without FSCPE representation in Full Count Review. Bureau and FSCPE analysts were to ensure that (1) group quarters were correctly placed or “geocoded” on census maps, and that their population counts and demographic characteristics appeared reasonable and (2) population counts of other areas were in line with population estimates. They were to describe each issue flagged and provide supporting documentation derived from bureau resources and/or resources of the respective state government. Additionally, bureau officials stated that staff from the regional offices reviewed demographic data from the 50 states, Puerto Rico, and the District of Columbia. They focused on identifying inconsistent demographic characteristics and did not necessarily concentrate on any one particular state or locality. The bureau reimbursed state governments for wages and expenses FSCPE members incurred. A separate set of employees from the bureau’s Population Division assessed issues identified by Full Count Review analysts based on (1) the adequacy of the documentation supporting each issue, and (2) whether or not they believed the issue to be resolvable through follow-up research by the bureau. Those issues deemed to have adequate documentation were classified as a “group quarters,” “housing unit,” or “household” or “other” issue. Bureau officials told us that the remaining issues could not be categorized because the nature of the issue could not be determined from the documentation. Bureau data show that after reviewing census data for 39 states and Puerto Rico, FSCPE members identified a total of 1,402 issues, or about 29 percent of the 4,809 issues collectively flagged during Full Count Review (see table 1). Since the bureau has yet to resolve most of these issues, it is not known whether they are necessarily errors. Table 1 also shows that group quarters issues were those most frequently identified by the bureau, accounting for 1,599 of the 4,809 issues identified (33 percent). Group quarters issues relate to suspected discrepancies in the population counts and locations of prisons, dormitories, nursing homes, and similar group living arrangements. Analysts also identified 479 housing unit issues (10 percent of the total), and 288 household issues (6 percent of the total). With housing unit issues, the count of occupied housing units differed from what analysts expected while household issues had population data for occupied residences that differed from what analysts expected. There were also 383 issues (8 percent) that the bureau classified as “other”. They contained questions concerning the demographic characteristics of the data such as age, race, and gender. The bureau was unable to classify 2,060 issues (43 percent). Bureau officials told us that in these cases, analysts did not provide sufficient documentation for the bureau to determine the nature of the issue. According to bureau officials, bureau analysts identified a larger number of issues than FSCPE members—and a far larger number of issues for which the bureau could not assign a type—because bureau analysts used an automated process that compared data from the 2000 Census to independent benchmarks such as the 1990 Census, and flagged any anomalies. This process alerted bureau officials that there were data discrepancies, but did not indicate their nature. By comparison, FSCPE members compared census data to administrative records and other data, and were better able to document specific issues. Examples of the three issue categories and how they were found include: Group quarters issues: Analysts noticed that the group quarters population count in a particular census tract of a large midwestern city appeared to be too high, while a neighboring tract had a correspondingly low group quarters population count. By comparing state administrative records to information obtained from bureau resources, analysts determined that bureau data had placed college dormitories in the wrong tract. Housing unit issues: An urban area had a large amount of redevelopment since the 1990 census. As part of this, several condominiums and apartment complexes were built which substantially increased the number of housing units in a particular census tract. However, when the analyst compared population data from the 1990 Census and 2000 Census, the 2000 Census did not appear to reflect this increase, and it was flagged. Household issues: Data from the 2000 Census appeared to accurately reflect the large amount of new house construction that had taken place within a specific census tract. However, because the population count differed from that indicated by other data sources, the analyst flagged it as an issue to avoid undercounting the population. Bureau officials told us that they used the Full Count Review program to identify systemic errors such as those that could be produced by software problems. None were found. The officials noted that the bureau generally did not use the Full Count Review program to resolve individual issues. According to bureau officials, the bureau corrected data for 5 of the 4,809 issues prior to the December 31, 2000, release of reapportionment data and the April 1, 2001, release of redistricting data. According to bureau officials, FSCPE members identified the five issues, all of which involved group quarters that were placed in the wrong locations, but the population counts were correct. They included (1) a military base in Nevada, (2) 10 facilities at a college in Wisconsin, (3) 9 facilities at a prison in New York City, (4) 14 facilities at a Washington prison, and (5) a federal medical center in Massachusetts. Bureau officials said that the bureau was able to correct these issues for two reasons. First, FSCPE analysts found them early in the Full Count Review program, while the bureau was processing a key geographic data file and was thus able to incorporate the corrections before the data were finalized. Second, the FSCPE analysts had thoroughly documented the issues and recommended how the bureau should correct the errors. The five errors did not require additional research or field verification. Bureau officials told us that they lacked the time to research the remaining issues, as well as field staff to inspect purported discrepancies prior to the release of the public law data. As a result, the bureau missed an important opportunity to verify and possibly improve the quality of the data, and instead the apportionment and redistricting data were released with more than 4,800 unresolved issues. Until these issues are resolved, uncertainties will surround the accuracy of the census data for the affected localities. Some of the issues might be resolved under the CQR program, which the bureau designed to respond to challenges to housing unit and group quarters population counts received from state, local, or tribal governments. However, as shown in table 2, of the 4,804 issues remaining after Full Count Review, 1,994 (42 percent) were referred to CQR, and of these, 537 (11 percent) were accepted for further investigation. The remaining 1,457 issues referred to CQR did not meet the bureau’s documentation requirements and consequently, the bureau took no further action on them (see app. 1 for the disposition of Full Count Review data issues by state). The overall results of the Full Count Review program and FSCPE members’ participation appear to be mixed. On the one hand, the bureau reported that the Full Count Review program was successful in that it met a number of performance goals. For example, the bureau reported that the Full Count Review program was comprehensive in its review of geography and content, and was completed in time to release the public law data on schedule. Moreover, between January and February 2001, the bureau surveyed the 40 entities that participated in Full Count Review and the results suggest that most FSCPE members were satisfied with their Full Count Review experience. For example, respondents indicated that they were generally satisfied with such aspects of the program as its processes and technical tools, bureau staff, and the overall effectiveness of the review in terms of positioning states to use and understand census data. In addition, bureau officials believe the Full Count Review program benefited from FSCPE members’ local demographic knowledge. Nevertheless, our review of the Full Count Review program highlighted several areas where there is room for future improvement. It will be important for the bureau to address these shortcomings as its preliminary plans call for a similar operation as part of the 2010 Census. According to bureau officials, the bureau plans to include a Full Count Review program in census tests it expects to conduct later in the decade. Foremost among the areas in need of improvement is resolving, to the extent practical, a larger number of data issues prior to the release of apportionment data by December 31 of the census year, and redistricting data by April 1 of the following year. We found three factors that limited the bureau’s ability to do so. First, according to bureau officials, resolving individual issues was outside the scope of the Full Count Review program. They explained that the program was poorly integrated with other census operations and units that could have investigated the issues and corrected the data if warranted. This was because the Full Count Review program, with FSCPE participation, was not conceived until February 1999, which was extremely late in the census cycle, coming just 14 months before Census Day, April 1, 2000. The timing of the decision stemmed from the Supreme Court’s January 1999 ruling that prohibited the bureau from using statistical sampling for purposes of congressional apportionment (the bureau originally planned a “one-number” census that would have integrated the results of a sample survey with the traditional census to provide one adjusted set of census numbers). Faced with the larger workload of reviewing two sets of data— adjusted and unadjusted—the bureau decided to enlist the help of FSCPE members in order to meet the deadlines for releasing the public law data. Additionally, the bureau’s decision came after the 1998 dress rehearsal for the 2000 Census, which meant that the bureau had no opportunity to test the Full Count Review program in an operational environment. Bureau officials explained that if more time or staff were available in the future, it would be possible to correct a larger number of individual issues prior to the release of the public law data. They noted that field staff would be needed to help verify issues, and the effort would require close coordination with several bureau units. A second factor that affected the bureau’s ability to correct a larger number of issues was that the bureau’s requirements for documenting data issues were not clearly defined. For example, the training materials we examined did not provide any specific guidance on the type of evidence analysts needed to support data issues. Instead, the training materials told analysts to supply as much supporting information as necessary. This could help explain the variation that we observed in the quality of the documentation analysts provided. Indeed, while some analysts provided only minimal data, others supported issues with state and local administrative records, historical data, photographs, and maps. In some cases, the bureau had difficulty determining the precise nature of an issue or if in fact an issue even existed. In contrast, the CQR program provides comprehensive guidelines on the documentation required for making submissions. The guidance available on the bureau’s CQR web site notes that before the bureau will investigate concerns raised by government and tribal officials, such officials must first supply specific information. The guidance then details the information needed to support boundary corrections, geocoding and coverage corrections, and group quarters population corrections. A third, and related factor that affected the bureau’s ability to resolve a larger number of issues stemmed from the fact that the bureau had no mechanism for managing the Full Count Review workload. Unlike the CQR program, where the bureau required local governments to provide specific documentation before it would commit resources to investigate local data issues, the Full Count Review program had no filter for screening submissions based on the quality of the documentation. Better guidance on documenting issues for the Full Count Review program could make the bureau’s follow-up investigations more efficient. Another area where there is room for improvement concerns the consistency and clarity in which the bureau communicated the objectives of the Full Count Review program and how the bureau planned to use analysts’ input. For example, materials used to train FSCPE members noted that one purpose of Full Count Review was to document issues and “fix what can be fixed.” However, this appears to be inconsistent with statements made by bureau officials, who noted that resolving individual issues was beyond the scope of the Full Count Review program. Moreover, according to one bureau official, it was not clear internally what was meant by “fix what can be fixed.” None of the bureau’s documentation or training manuals that we reviewed explicitly stated that the bureau would only check for systemic errors. Because of the inconsistent message on the purpose of the Full Count Review program, the bureau may have set up the expectation that a larger number of issues would be resolved during Full Count Review. For example, one FSCPE member told us that he expected FSCPE members would identify any geographic discrepancies that contrasted with preliminary census data, and the bureau would investigate and make the necessary changes. He noted that both he and his staff were very “dismayed” to find out that certain discrepancies involving group quarters were not resolved prior to the release of the public law data. Another FSCPE member told us that participants were strongly motivated by the expectation that everything would be done to correct the census data. The Full Count Review program was one of a series of quality assurance efforts the bureau implemented throughout the census that helped ensure the bureau released accurate data. Moreover, FSCPE members’ participation, and specifically their expertise and knowledge of local geography, demographics, and housing arrangements, had the potential to identify data issues that the bureau might have otherwise missed. However, the fact that the apportionment and redistricting data were released with around 4,800 unresolved data issues of unknown validity, magnitude, and impact, is cause for concern, and indicates that the bureau missed an opportunity to verify and possibly improve the quality of the public law data. Given the importance of accurate census data and the resources that bureau staff and FSCPE members invest in the Full Count Review program, it will be important for the bureau to explore how to make better use of the program for correcting potential errors in census data in the future. It will also be important for the bureau to clarify the purpose of the Full Count Review program and convey that purpose clearly and consistently to FSCPE members. Doing so could help ensure that the bureau meets FSCPE members’ expectations. To help ensure the accuracy and completeness of census data and take full advantage of the Full Count Review program and FSCPE members’ participation, we recommend that the Secretary of Commerce direct the bureau to develop ways to resolve a larger number of data issues prior to the release of the public law data. Specifically, consideration should be given to (1) planning the Full Count Review program early in the census cycle and testing procedures under conditions as close to the actual census as possible, (2) integrating the Full Count Review program with other census organizational units and operations to ensure the bureau has sufficient time and field support to investigate issues, (3) developing clear guidelines on the minimum documentation needed for the bureau to investigate individual data issues, (4) categorizing issues on the basis of the quality and precision of the documentation, and investigating first those issues that are best documented and thus more easily resolved, and (5) exploring the feasibility of using staff from the bureau’s regional offices to help investigate data issues in the field prior to the release of public law data. Moreover, to ensure no expectation gaps develop between the bureau and FSCPE members, the Secretary of Commerce should also ensure that the bureau clarifies and consistently communicates to participants the objectives of the Full Count Review program and how the bureau plans to use the information derived from it. The Secretary of Commerce forwarded written comments from the Bureau of the Census on a draft of this report (see app. II). The bureau concurred with all of our recommendations and had no comments on them. The bureau also provided minor technical corrections that we incorporated in our report as appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from its issue date. At that time, we will send copies to other interested congressional committees, the Secretary of Commerce, and the Director of the Bureau of the Census. Copies will be made available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Corinna Wengryn, Ty Mitchell, and Robert Goldenkoff made major contributions to this report. If you have any questions concerning this report, please contact me on (202) 512-6806. U.S. General Accounting Office. 2000 Census: Coverage Evaluation Matching Implemented As Planned, but Census Bureau Should Evaluate Lessons Learned. GAO-02-297. Washington, D.C.: March 14, 2002. U.S. General Accounting Office. 2000 Census: Best Practices and Lessons Learned for a More Cost-Effective Nonresponse Follow-Up. GAO- 02-196. Washington, D.C.: February 11, 2002. U.S. General Accounting Office. 2000 Census: Coverage Evaluation Interviewing Overcame Challenges, but Further Research Needed. GAO- 02-26. Washington, D.C.: December 31, 2001. U.S. General Accounting Office. 2000 Census: Analysis of Fiscal Year 2000 Budget and Internal Control Weaknesses at the U.S. Census Bureau. GAO-02-30. Washington, D.C.: December 28, 2001. U.S. General Accounting Office. 2000 Census: Significant Increase in Cost Per Housing Unit Compared to 1990 Census. GAO-02-31. Washington, D.C.: December 11, 2001. U.S. General Accounting Office. 2000 Census: Better Productivity Data Needed for Future Planning and Budgeting. GAO-02-4. Washington, D.C.: October 4, 2001. U.S. General Accounting Office. 2000 Census: Review of Partnership Program Highlights Best Practices for Future Operations. GAO-01-579. Washington, D.C.: August 20, 2001. U.S. General Accounting Office. Decennial Censuses: Historical Data on Enumerator Productivity Are Limited. GAO-01-208R. Washington, D.C.: January 5, 2001. U.S. General Accounting Office. 2000 Census: Information on Short- and Long-Form Response Rates. GAO/GGD-00-127R. Washington, D.C.: June 7, 2000.","To ensure the completeness and accuracy of the 2000 census data, Bureau of the Census analysts were to identify, investigate, and document suspected data discrepancies or issues to clear census data files and products for subsequent processing or public release. They were to determine whether and how to correct the data by weighing quality improvements against time and budget constraints. Because the bureau lacked sufficient staff to conduct a full count review on its own, it contracted out some of the work to members of the Federal-State Cooperative Program for Population Estimates (FSCPE). FSCPE documented 1,402 data issues, 29 percent of the 4,809 issues identified by both FSCPE and bureau analysts during the full count review. Of the 4,809 issues, 1,599 dealt with ""group quarters,"" where counts for prisons, nursing homes, dormitories, and other group living facilities differed from what analysts expected. Of the 1,599 group quarters issues, FSCPE identified 567. Discrepancies relating to housing unit counts, population data, and demographic characteristics accounted for 1,150 issues, 375 of which were identified by FSCPE. Overall, of the 4,809 issues identified during review, 4,267 were not subjected to further investigation by the bureau because of insufficient documentation. Because the bureau's preliminary plans for the 2010 Census include a Full Count Review program, several areas warrant improvement. Foremost among these is the need for the bureau to investigate and resolve a larger number of issues before releasing the public law data."
"Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. This integration is reflected in several international conventions including the 1972 United Nations Conference on the Human Environment (the Stockholm Convention), the 1992 United Nations Conference on Environment and Development (the Rio Convention), the 1992 United Nations Framework Convention on Climate Change (UNFCCC), and the 2002 World Summit on Sustainable Development (the Johannesburg Summit), among others. Donor countries, including the United States, that provide financial assistance to lower-income countries to aid in their economic development, have increasingly targeted projects that address the full range of economic growth indicators. These indicators include financial viability, social inclusivity, and environmental sustainability at both the local and the global level. The World Bank Group (WBG), as the world's largest multilateral lending institution for development assistance, sits at the nexus of these efforts. As an international organization, the WBG is generally exempt from U.S. law. However, the United States—through its role as a financial contributor to the WBG and as a member on the various WBG governing boards—has influence on WBG policy. This influence manifests itself through voting power on the Board, general advocacy, reporting requirements, and financial leverage. Through these efforts, various U.S. Administrations have focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. Similarly, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—has significant input on these issues. Congressional debate over the WBG's environmental practices is long-running. As early as 1983, a campaign to call attention to environmental problems caused by WBG projects was undertaken by several U.S. environmental groups, including the Sierra Club, Environmental Defense Fund, National Wildlife Federation, Natural Resources Defense Council, and others. The U.S. Congress subsequently held hearings on the issues documented by these groups, and began a process that saw annual investigations by a wide range of committees, including those on banking, foreign affairs and foreign relations, appropriations, environment, and others. Witnesses included environmental groups from the United States and affected countries and the U.S. officials charged with directing U.S. participation in the WBG institutions. When asked by Congress to look into the problems identified by environmental groups, U.S. Treasury officials also became concerned about possible negative environmental impacts of WBG projects—a subject that had received little or no official attention at that time. Beginning in the mid-1980s and continuing to the present, Congress has passed a succession of laws that aim to influence environmental practices at the WBG. Legislative guidance to help direct the U.S. officials in encouraging and promoting sustainability goals at WBG institutions has been included in many authorizing legislations and annual foreign operations appropriations bills. The primary legislative vehicle for U.S. interaction with the WBG has been the International Financial Institutions Act of 1977, as amended ( P.L. 95-118 ), as well as various annual appropriations acts, provisions of which are found in the U.S. Code, Title 22, Chapter 7. The U.S. Code has several sections related to energy and environmental issues at the WBG, including guidance for the sustainable use of natural resources and the protection of the environment, public health, and the status of indigenous peoples in developing countries; requirements for environmental impact assessments and the identification of proposals likely to have adverse impacts; mandates for the creation of information exchange systems among countries and civil society organizations related to the environment; promotions for loans supporting environmentally beneficial policies, projects, and project components; and directives to adopt and implement greenhouse gas accounting in analyzing the benefits and costs of individual projects and ensure the expansion of activities supporting climate change mitigation. Through the years, the WBG has incorporated guidance provided by the U.S. Congress via the U.S. Executive Directors in various lending reforms and operational policies. In 2009, U.S. environmental guidance—as well as other internal and external pressures—led to the WBG reporting its intentions to revise its decade-old strategy for energy and infrastructure lending. After releasing an Energy Strategy Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), dated March 16, 2011, was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. This report summarizes the provisions of the proposed Energy Sector Strategy of the World Bank Group. It situates the strategy within current WBG lending practices and in response to various stakeholder critiques. A final section outlines issues for Congress. The core mission of the World Bank Group, as stated in its literature and outreach, is poverty alleviation and environmentally sustainable development. Research shows an estimated 1.4 billion people worldwide (i.e., 20% of the world population) are without access to electricity or modern energy resources, and many more face recurrent supply disruptions. Demand for primary energy is estimated to increase by 80% in lower-income countries by 2035, and achieving universal access to electricity is estimated to require an additional annual average investment of $36 billion. Also, approximately 3 billion people continue to rely on traditional solid fuels for heating and cooking, with estimates that nearly 2 million die annually, and many more fall ill, from indoor air pollution caused by this practice. Further, it is speculated that lower-income countries may bear up to 80% of the cost of future damages caused by global climate change. Research suggests that energy-saving policies and low-emission technologies could be ways for meeting future energy needs in a globally sustainable manner as well as for mitigating local environmental problems associated with energy production and use. The WBG claims that achieving these goals could contribute significantly to eradicating poverty and hunger, supporting primary education, promoting gender equity, combating disease, and ensuring environmental stability, as well as increasing entrepreneurial business activities and economic development in lower-income countries. But World Bank environmental strategies are not without their critics. Throughout the years, many of the WBG's lending practices have supported projects with potentially negative environmental implications. Road construction, large dams, fossil-fuel power generation, mining and extractive industries, and agricultural and forestry projects sponsored by WBG lending have been criticized by many who believe they are not only environmentally destructive, but are often harmful to large segments of the population in the societies they are intended to help (e.g., farm fertility may be harmed by unsustainable agriculture practices, soil may be contaminated by adjacent energy or mining industries, fisheries may be affected by pollution from excess fertilizer use or industrial runoff). World Bank Group lending for energy infrastructure projects totaled $13 billion in 2010. Projects included investment in upstream exploration, new and retrofitted facilities for power generation, transmission and distribution systems, demand side management and energy efficiency programs, and policy and technical advice. Energy lending currently accounts for 17% of the WBG's investment portfolio (see Figure 1 ), and has grown steadily over the past decade (e.g., energy sector lending averaged approximately $2.4 billion annually from 2000-2004, and accounted for roughly 4%-6% of the WBG's investment portfolio during those years). In 2003, at the request of the Board of Executive Directors, WBG management established an Infrastructure Action Plan to revitalize the WBG's engagement with the energy sector. Further, in response to the global financial and economic crisis, the WBG launched the Infrastructure Recovery and Assets Platform in April 2009 (to support counter-cyclical spending on infrastructure) and the Infrastructure Crisis Facility in December 2009 (to ensure the availability of long-term debt to support private infrastructure projects affected by capital shortages). Due in part to these initiatives, total commitments in the sector have grown significantly. Figure 2 presents recent lending figures by energy sector. See also Appendix B for numerical data related to lending by sector, by financing institution, and by geographic region. The WBG reported that 2010 marked an all-time record in renewable energy and energy efficiency financing, as well as a new record in low carbon financing. Figures for new investment showed a 62% increase in low carbon commitments to $5.5 billion compared to 2009, and low carbon energy financing accounted for 42% of all 2010 commitments. Additionally, 30 out of 34 country assistance and partnership strategies prepared in 2010 addressed climate change and sustainable development. However, critics noted that the WBG's ""low carbon financing"" category funded fossil fuel projects that supported increased use of ""cleaner"" fuels to displace more carbon intensive ones. Similarly, focusing solely on the categories for ""renewable energy"" and ""energy efficiency,"" rather than the broader category for ""low carbon,"" showed a decrease in these sectors' shares of total energy investment, from 39% in 2009 to 26% in 2010. Likewise, while renewable energy and energy efficiency financing established all-time highs in 2010, at $1.6 billion and $1.8 billion respectively, so did new fossil fuel thermal power generation, up to $4.3 billion, a fourfold increase over 2009. The WBG promoted additional initiatives during 2010 as having supported increased energy access and environmentally sustainable development. These included (1) the World Bank Carbon Finance Unit, which backed 250 projects through the purchase of carbon credits representing a monitored 141 million tons of greenhouse gas emissions; (2) the Climate Investment Funds, a trust-funded global partnership hosted by the World Bank, which assisted countries' transitions toward low carbon and climate-resilient development; (3) the World Bank Forest Carbon Partnership Facility, which mobilized $165 million for capacity building and performance-based payments to pilot projects in forest and land management; (4) the Global Facility for Disaster Risk Reduction and Recovery, another trust-funded global partnership hosted by the World Bank, which promoted the integration of climate risk management into the WBG's development efforts; and (5) the Global Environment Facility, another trust-funded global partnership hosted in part by the World Bank since 1991, which assisted countries with environmental projects related to six areas: biodiversity, climate change, international waters, the ozone layer, land degradation, and persistent organic pollutants. Many lower-income countries continue to view the WBG primarily as a financial institution to assist in poverty alleviation and economic development, not as an organization to address environmental issues. They may be interested in low-cost, high-growth energy and infrastructure technologies that can rapidly and reliably deliver benefits to their target populations over short time periods. For this reason, they may be concerned that an emphasis on renewable energy, such as solar power, wind, and biofuels, may not sufficiently meet the growing demand for electricity in an affordable and reliable manner. They may view renewable alternatives with skepticism—especially if they are not widely used in industrialized economies—and they may likely prefer more traditional fossil fuel-based options, even if the consequences on long-term sustainability are more damaging. Additionally, they may see efforts by industrialized countries to require measurement, reporting, and verification of greenhouse gas emissions and other environmental pollutants as an unnecessary burden on short-term project development, economic growth, and national sovereignty. There are some segments in higher-income countries that support the economic growth arguments of developing countries, and see little need for investment in low-carbon or renewable energy technologies. Further, some observers are opposed to the practice of foreign aid in general. They argue that grant and loan-based financial assistance is a detriment to economic growth in developing countries because it removes incentives, institutes dependency, and fuels corruption. Other segments, including recent U.S. Administrations, have generally supported the environmental efforts of the WBG and have followed its progress on such initiatives as (1) the updating and consolidating of its environmental and social safeguard policies into an integrated environmental and social policy framework, (2) the updating of its energy sector strategy, and (3) the development of the ""World Bank Framework and IFC Strategy for Engagement in the Palm Oil Sector,"" which would guide future engagement in the sector following the September 2009 moratorium on new investments. The United States is also seeking to strengthen the IFC's environmental and social performance standards as well as its Policy and Performance Standards on Environmental and Social Sustainability and its Access to Information Policy. The United States continues to work with the World Bank to ensure that its lending practices reinforce efforts to promote lower carbon development pathways, and has recently provided a policy document which suggests baseline requirements for fossil-fuel projects, Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) The greatest concern of developed countries often tends to be the dislocation between the WBG's stated policies and its subsequent actions—a dislocation often characterized as a split between its visionary or aspirational flagship studies for external audiences and its internally operational practices. In this regard, some countries suggest that any practical guidance for the WBG's engagement in the energy and environment sector should be grounded in regional and country programs, as well as in its Strategic Framework for Development and Climate Change. Many environmental observers claim that the history of the WBG's energy and infrastructure lending wholly undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. Environmental groups often highlight the inconsistencies between the WBG's rhetoric on climate change and sustainable development and its operational policies and practices. They emphasize that while the WBG may have increased financing for renewable energy and energy efficiency in recent years, its fossil fuel lending still accounts for a large portion of its portfolio (see Appendix B for a comparison of energy sector investments). They argue that the controversy is compounded by the WBG's inability to reach a consensus on the definition of ""clean energy technology,"" retaining provisions for natural gas and ultra-supercritical coal-fired power generation in its sustainability strategies. Further, some environmental groups contend that the WBG misrepresents its practices when reporting information on energy access, environmentally sustainable development, and clean energy projects. They claim that WBG investment is more heavily weighted in favor of fossil fuels than officially reported because the institutions do not provide accurate accounting for fossil fuel development in such lending categories as ""transmission and distribution"" and ""policy and technical assistance."" Likewise, critics claim that the WBG fails to account for fossil fuel investments that are taking place through financial intermediaries (i.e., arrangements for loans or equity financing to a foreign entity such as a local commercial bank, private equity fund, or special government managed fund). Critics suggest that financial intermediary arrangements may represent a substantial portion of WBG funding. For example, the Bank Information Center reports that financial intermediary funding comprises over 40% of investments by the International Finance Corporation, the WBG's private sector lending arm. Finally, critics argue that the WBG misrepresents its lending for energy efficiency and renewable energy technologies, contending that the greater part of these programs are financed through specific donor funds, such as the Global Environment Facility and the Climate Investment Funds, that are not structurally a part of the WBG. Many observers agree that continued investment by the WBG in fossil fuel energy and infrastructure may have several unintended effects, including (1) counteracting any gains made with the WBG's renewable portfolio, (2) directing resources toward large-scale power generation for industrial use rather than energy access and poverty reduction in poor urban and rural communities, and (3) drawing the WBG's professional and technical staff away from a concentration on energy efficiency and renewable energy activities to remain involved with fossil fuel generation. The core mission of the World Bank Group is poverty alleviation and environmentally sustainable development, as introduced through the Millennium Development Goals. As a reflection of this mission statement, the WBG has sought to devise a strategy for financing energy and infrastructure projects that could best address these two concerns. Over the past few years, through research and analysis both internal and external, the WBG has surmised that a departure from existing energy policy and lending approaches would be required in order to (1) provide adequate, equitable, and reliable energy for future economic development and poverty reduction; (2) extend energy access and support household energy programs; (3) ensure the long-term environmental sustainability of the energy sector; and (4) address global climate change. For these purposes, the WBG set forth to prepare an updated energy sector strategy, as the existing framework—provided in a 1999 document, Fuel for Thought (FFT), and an informal 2001 paper entitled The World Bank Group's Energy Program: Poverty Alleviation, Sustainability, and Selectivity— dated back over a decade. An Energy Strategy Approach Paper was released in the fall of 2009. The WBG held a series of meetings, videoconferences, and other events during a consultations phase from January 2010 to July 2010 in which a reported 2,100 participants from government, civil society, the private sector, and academia were surveyed through 50 face-to-face meetings and 170 written submissions. The revised strategy, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Board Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Executive Board for a vote. Prior WBG statements had mentioned a proposed second consultation phase between the presentation to CODE and delivery to the Executive Board. The ESS, however, stalled during debate in CODE. According to the WBG's website, as of April 11, 2011, ""The World Bank Group's Board Committee on Development Effectiveness is now reviewing a draft energy sector strategy for the organization. The strategy document will be posted on the website when this review is completed."" Posting of the draft strategy is still pending. Some WBG observers have reported that the ESS is to be modified as necessary to reach consensus in CODE, with little or no external consultation, before an informal Board date in July or later. Media reports indicate that the interruption was caused by a stalemate in CODE over provisions in the ESS for coal-fired power generation (i.e., the ESS no longer supports new coal-fired power generation in middle-income countries). Sources report that China and some other countries claimed that the ESS's coal provisions were ""discriminatory."" With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. The WBG states that the ESS is a 10-year strategy document. Provisions are to cover lending and investment activities in all five WBG sub-institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). The ESS, however, would not cover activities at the regional development banks (i.e., Inter-American Development Bank, African Development Bank, Asian Development Bank, and European Bank for Reconstruction and Development), the International Monetary Fund, or other independent, international financial institutions. The March 16 draft text of the ESS contains the following provisions, among others: Focusing on Alternatives to Coal-Fired Power Generation. The ESS aims to focus on ways to help countries identify alternatives to coal. The strategy calls for eliminating loans for all new coal-based power generation projects (i.e., ""greenfield"" projects) in middle-income countries (i.e., IBRD and Blend countries). (See Appendix A for WBG ""IBRD,"" ""Blend,"" and ""IDA"" country classifications; the distinction reflects the level of income and the credit-worthiness of a country). The strategy supports consideration for new coal-based power generation projects in IDA countries under strict compliance with WBG guidelines. The strategy also maintains financing to increase the efficiency of existing coal plants (i.e., ""brownfield"" projects), to be undertaken only after considering the impact of greenhouse gas emissions over the lifetime of the power plant. Further, the strategy approves natural gas projects that can demonstrate a lower emissions potential compared to available alternatives and that can serve as a base-load complement to intermittent renewable energy generation. Developing Large-Scale Hydropower Where Appropriate. The ESS allows consideration of large-scale hydropower projects in developing countries that conform to environmentally and socially sustainable criteria. The WBG describes its support for hydropower as a means to provide low-emissions electricity, expand markets, facilitate interconnected power systems, and tap the potentially large and cost-efficient resources available to lower-income countries, particularly in Sub-Saharan Africa and South Asia. Establishing Greenhouse Gas Emissions Analysis Programs. The ESS proposes to begin a greenhouse gas emissions analysis program for all new power generation projects starting in 2012 and for all other energy investment projects once methodologies have been developed. The WBG describes its support for greenhouse gas monitoring as a means to address global climate change, generate and transfer knowledge, identify opportunities for energy diversification, and help access low carbon financing. Increasing Lending for Clean Energy Projects. The ESS aims to substantially and steadily increase lending for clean energy projects, raising its share of investment in projects classified as ""energy efficiency,"" ""renewable energy,"" ""energy policy,"" and ""electricity transmission and distribution"" from an average of 67% in 2008-2010 to over 75% by 2015. Currently the number of governments that have set policy targets or introduced incentives for renewable energy has doubled since 2005 and now exceeds 100; half of these are in lower-income countries. The WBG describes its support for a shift toward low carbon energy technologies as a means to address sustainable development and global climate change. Prioritizing Energy Efficiency Initiatives. The ESS aims to assist countries in designing incentives and removing technical and non-technical barriers to increase energy efficiency in all economic sectors. Estimates show that considerable scope exists for energy efficiency improvements in all countries, with the International Energy Association supporting scenarios wherein efficiency improvements could provide 67% of energy-related greenhouse gas reductions in 2020, and 47% in 2035. The WBG describes its support for improving energy efficiency as a means to address global climate change, lower energy demand, enhance reliability, potentially make energy more affordable to the poor, and reduce the vulnerability of the energy sector to external shocks and supply constraints. Expanding Access to Modern Energy Services. The ESS aims to provide reliable access to modern energy services at the lowest price financially viable and sustainable for energy suppliers. Current WBG projects in the energy sector between 2012 and 2015 are targeted to extend access to 25 million to 30 million people. The ESS proposes to extend additional access to 65 million to 80 million people through commitments made between 2012 and 2020, including construction of 8-12 gigawatts of additional generation capacity in Sub-Saharan Africa. The WBG describes its support for expanding access as a means to provide basic services, enhanced opportunities for education and health care, and greater entrepreneurial opportunities for developing economies. Improving Household Fuel and Distributed Energy Programs. The ESS aims to expand programs in household energy to increase the quality of energy services and decrease the impacts of energy poverty. The ESS proposes to promote initiatives such as solar-based energy services, high-performance cook-stoves, sustainable production of biomass-based energy, and other distributed energy supply options. The WBG describes its support for improving household fuel sources as a means to free families and communities from the debilitating health burdens exacted by indoor air pollution and to alleviate the impacts of energy poverty on women, children, and socioeconomic groups that may pay higher costs (in terms of time, labor, and finances) for these services. Encouraging Local Community Engagement and Empowerment. The ESS aims to harness the benefits of local community participation in terms of improving design, mobilizing contributions, and increasing local ownership and operational sustainability. Gender equity is also promoted. Promoting Innovative Policy. High and volatile fuel prices, energy shortages, and a continuing inability to finance essential energy infrastructure continue to affect development finance in lower-income countries. The ESS aims to promote innovative policy tools, transparent market designs, new financial models and instruments (including carbon markets), strengthened governance across energy supply chains, and private sector participation to address investment barriers. While the World Bank Group may function independently as a lending institution and technical consultant, its funding remains tied to the financial contributions of donor country governments. This fact necessarily puts a limit on the WBG's resources. Due to these limitations, questions regarding the ways and means of financial disbursements become substance for debate among the lending institutions, contributing governments, recipient countries, and civil society stakeholders (e.g., questions include the following: How best to use scarce resources? Which countries and which projects receive funding? Why?). Policies such as the ESS position the WBG between outspoken environmental groups that advocate for substantial reform, higher-income countries like the United States that support raising the bar for environmental and social safeguards, and lower-income countries that insist on having the ability to address poverty alleviation and economic development as they see fit. Some of the critiques by various stakeholders regarding the WBG's energy lending practices in general and the ESS in particular are as follows: The media report that reactions by lower- and middle-income countries to the March 16 draft of the WBG ESS centered primarily around the language on coal. Sources report that China and some other countries claimed the ESS's coal provisions were ""discriminatory."" In a recent interview with Environment & Energy Publishing, Rogério Studart, the World Bank Executive Director for Brazil, is reported as stating that the agency's plan to prevent middle-income countries from accessing loans for new coal plants, while still allowing them for the poorest countries, is ""a dangerous precedent."" He claims that banning coal would only hurt the poorest countries that currently cannot afford cleaner or renewable alternatives. He argues that ""some countries cannot provide energy access, particularly in Africa, without coal, and the Bank knows that."" Some countries also raised concerns over the WBG's reliance on markets and the private sector as the principal means of developmental assistance delivery, and said the WBG should do more to promote technology transfer for renewable energy and energy efficiency. Most of the provisions outlined in the March 16 draft of the WBG ESS are consistent with policy guidance that has been provided by higher-income, donor country governments. With respect to the United States government, the IDA-only criteria for new coal-fired power generation, and the provisions for more efficient brownfield coal retrofits, are consistent with the December 2009 U.S. Treasury Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) Further, the greenhouse gas accounting is consistent with legislative mandates given in the Supplemental Appropriations Act of 2009 ( P.L. 111-32 ). Language on increased energy access and promotion of renewable energy alternatives is also consistent with many previously legislated mandates. The United States has commonly supported large-scale hydropower projects if they are accompanied by substantial upstream and downstream environmental and social accounting. Media and nongovernmental organizations report that reactions to the March 16 draft of the WBG ESS by environmental groups has been generally positive. The coal provisions are seen as a victory by many (although some have advocated for eliminating coal investments entirely). Other groups have stated they remain concerned about possible loopholes in the strategy. These include (1) a failure to define ""brownfield,"" leaving open the possibility for wider coal lending; (2) a push to fund ""emerging technologies,"" causing concern over whether that definition would allow the WBG to loan money for carbon capture and storage development (an implicit support for coal); and (3) continued emphasis on hydropower, prompting concerns over the environmental and social impacts of more large dams. Continued stakeholder engagement is also desired by the environmental community. The proposed Energy Sector Strategy before the World Bank Group Committee on Development Effectiveness and the Board of Executive Directors is a potential vehicle for the U.S. Congress and the U.S. Administration to address concerns regarding energy and infrastructure lending in lower-income countries and its effect on poverty alleviation and environmentally sustainable development. Whether the provisions in the March 16 draft of the ESS are retained in the final version depends upon negotiations currently taking place in CODE and in the subsequent vote by the Board of Executive Directors. WBG debate on the ESS also coincides with several other institutional initiatives, including (1) the drafting of a coordinated set of environmental and social safeguards, (2) the introduction of a new results-based lending platform, and (3) the request for increases in its capital base to fund the continued expansion of its development lending programs. The final version of the ESS may influence negotiations on any of these initiatives, and vice versa. Further, authorizations and appropriations for U.S. participation in the capital increases at the WBG are currently included in the U.S. Administration's FY2012 budget request. Levels of U.S. funding for the capital increase may likewise influence negotiations on these initiatives. The United States carries one—albeit a significant—voice and vote in the policies of the WBG. The U.S. Congress retains the role of deciding the overall terms of U.S. involvement in the WBG by setting the level of U.S. contributions and by influencing how the United States votes on policies and projects. The House Committee on Financial Services (Subcommittee on International Monetary Policy and Trade) and the Senate Committee on Foreign Relations (Subcommittee on International Development and Foreign Assistance, Economic Affairs, and International Environmental Protection) are responsible for managing WBG authorization legislation. The U.S. House and Senate Committees on Appropriations (Subcommittees on State, Foreign Operations, and Related Programs) manage the relevant appropriations legislation. Congress can enact legislative mandates that oversee and regulate U.S. participation in the WBG. These mandates fall into one of four main categories. First, legislative mandates direct how the U.S. representatives at the WBG can vote on various policies and projects. Second, legislative mandates direct the U.S. representatives at the WBG to advocate for specific policies. Third, Congress may require the Secretary of the Treasury to submit reports on WBG activities. Fourth, Congress may attempt to influence policies at the WBG through the ""power of the purse,"" that is, by withholding funding from the WBG or attaching stipulations on the WBG's use of funds. Appendix A. World Bank Group Classifications WBG institutions base their lending on levels of economic development. Appendix B. World Bank Group Energy Portfolio, FY2003-FY2010 Appendix C. U.S. Department of the Treasury Guidance to the Multilateral Development Banks on Coal In December 2009, the U.S. Treasury Department transmitted to the senior management of the multilateral development banks (MDBs) guidance for engaging with developing countries on coal-fired power generation. The guidance is intended to be adapted by individual MDBs and incorporated into their respective operational policies, country and sector strategies, and other procedures that are related to the public or private project cycle for coal-powered generation operations. It covers a range of issues including alternatives analysis, power sector policy reform, and capacity building. It is intended to supplement rather than supersede other MDB operational policies (e.g., environmental impact assessment, other environmental and social safeguards, procurement) and to be used to help determine U.S. interactions with the MDBs as they update relevant sector strategies and operational policies. Provisions in the guidance include the following, among others: having the MDBs incorporate procedures to ensure full consideration of no or low carbon options before appraising a proposed new or retrofit coal-fired power generation project; identifying ""no or low carbon options"" as including (1) more carbon efficient fossil fuel generation, (2) renewable resources, (3) supply side efficiency improvements in other plants, and (4) demand side management; supporting the use of best internationally available technology for reducing GHG emissions if proceeding with appraisal of a new or retrofit coal generation project; for projects in IBRD and Blend countries, incorporating offsetting actions (i.e., a package of significant and measurable actions elsewhere in the power sector that, in the aggregate, are intended to reduce emissions by an amount equivalent to the emissions to be added by the proposed project); and, for projects in IDA-only countries, proceeding with appraisal of a coal project that does not meet the above best available technology criteria, if the project (1) addresses critical national energy security needs, (2) responds to national short-term emergencies, or (3) overcomes binding constraints on national economic development when no viable alternatives exist.","One in five people worldwide lack access to electricity. This is among the many challenges that financial institutions face when providing assistance to lower-income countries in order to promote economic and social development. Access to modern energy sources has the potential to substantially increase worldwide economic growth, creating markets in the developing world for products from the developed world, and vice versa. Filling this need may also result in environmental problems that could threaten development, including an increase in pollution that damages fisheries, reduces farm fertility, poses health risks, and contributes to climate change. In response to these risks, the World Bank Group (WBG) has reported its intentions to revise its strategy for energy and infrastructure lending to better address energy poverty alleviation and environmentally sustainable development. After releasing an Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. The impetus for the World Bank Group's revision of its energy strategy rests on many factors. Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. Further, lack of access to modern energy resources, recurrent supply disruptions, and increased exposure to the risks of global climate change have hindered social and economic development in many lower-income countries. The ESS comprises an initiative to support energy poverty alleviation and environmentally sustainable development with provisions that include deemphasizing coal-fired power generation, developing large-scale hydropower where appropriate, establishing greenhouse gas emissions programs, increasing lending for clean energy projects, promoting energy efficiency initiatives, expanding access to modern energy services, improving household fuel and distributed energy programs, encouraging local community engagement and empowerment, and supporting innovative energy policy. While some observers of the WBG have applauded provisions in the revised strategy, many claim that the history of the WBG's energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. The United States—through its role as financial contributor to the WBG and as member on the WBG governing boards—has influence on WBG policy. This influence manifests itself through Board votes, general advocacy, reporting requirements, and financial leverage. While the U.S. Administration oversees the day-to-day participation in WBG operations, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—retains significant input. U.S. guidance to the WBG has focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. The ESS thus becomes another potential vehicle for the U.S. Congress and the U.S. Administration to further address concerns regarding energy and infrastructure lending in lower-income countries."
"Antibiotics are substances that destroy microorganisms or inhibit their growth; they have been used for 70 years to treat people who have bacterial infections. In this report, the term antibiotic is used to refer to any substance used to kill or inhibit microorganisms, also sometimes referred to as an antimicrobial. Resistance to penicillin, the first broadly used antibiotic, started to emerge soon after its widespread introduction. Since that time, resistance to other antibiotics has emerged, and antibiotic resistance is becoming an increasingly serious public health problem worldwide. Bacteria acquire antibiotic resistance through mutation of their genetic material or by acquiring genetic material that confers antibiotic resistance from other bacteria. In addition, some bacteria developed resistance to antibiotics naturally, long before the development of commercial antibiotics. Once bacteria in an animal or human host develop resistance, the resistant strain can spread from person to person, animal to animal, or from animals to humans. Antibiotic-resistant bacteria can spread from animals and cause disease in humans through a number of pathways (see fig. 1). For example, unsanitary conditions at slaughter plants and unsafe food handling practices could allow these bacteria to survive on meat products and reach a consumer. Resistant bacteria may also spread to fruits, vegetables, and fish products through soil, well water, and water runoff contaminated by fecal matter from animals harboring these bacteria. If the bacteria are disease-causing, the consumer may develop an infection that is resistant to antibiotics. However, not all bacteria cause illness in humans. For example, there are hundreds of unique strains of Escherichia coli (E. coli), the majority of which are not dangerous. Indeed, while some strains of E. coli are dangerous to humans, many E. coli bacteria strains are a normal component of human and animal digestive systems. The use of antibiotics in animals poses a potential human health risk, but it is also an integral part of intensive animal production in which large numbers of poultry, swine, and cattle are raised in confinement facilities. Over time, food animal production has become more specialized and shifted to larger, denser operations, known as concentrated animal feeding operations. According to a 2009 USDA study, The Transformation of U.S. Livestock Agriculture: Scale, Efficiency, and Risks, this shift has led to greater efficiencies in agricultural productivity—meaning more meat and dairy production for a given commitment of land, labor, and capital resources—and lower wholesale and retail prices for meat and dairy products. However, the study notes larger farms with higher concentrations of animals may be more vulnerable to the rapid spread of animal diseases, which producers may combat by using antibiotics. Some producers elect to raise food animals without using antibiotics, in what are known as alternative modes of production (see app. II for more information about alternative modes of production). Modern dairy production is diverse, ranging from cows housed indoors year-round to cows maintained on pasture nearly year-round. In the United States, milk comes primarily from black and white Holstein cows genetically selected for milk production. Over the years, the concentration of more cows on fewer farms has been accompanied by dramatic increases in production per cow, arising from improved genetic selection, feeds, health care, and management techniques. Expansion to larger herd sizes has also allowed producers to increase the efficiency of production and capitalize on economies of scale. When a cow is no longer able to breed and produce milk, it is usually sold to the market as beef. According to the National Milk Producers’ Federation, dairy producers use antibiotics to treat mastitis, an inflammation of the udder, and other diseases. Any milk produced during antibiotic treatment, and for a specific withdrawal period after treatment has ceased, must be discarded in order to prevent antibiotic residues in milk. This discarded milk imposes an economic cost to dairy producers, so producers generally avoid treating dairy cows with antibiotics when possible. According to the National Milk Producers’ Federation, dairy producers do not use antibiotics for growth promotion that are medically important in human medicine.  Disease treatment: administered only to animals exhibiting clinical signs of disease.  Disease control: administered to a group of animals when a proportion of the animals in the group exhibit clinical signs of disease.  Disease prevention: administered to a group of animals, none of which are exhibiting clinical signs of disease, in a situation where disease is likely to occur if the drug is not administered.  Growth promotion: sometimes referred to as feed efficiency, administered to growing, healthy animals to promote increased weight gain. Such uses are typically administered continuously through the feed or water on a herd- or flock-wide basis. Although such use is not directed at any specifically identified disease, many animal producers believe the use of antibiotics for growth promotion has the additional benefit of preventing disease, and vice versa. In recent years, both FDA and WHO have sought to identify antibiotics that are used in both animals and people and that are important to treat human infections, also known as medically important antibiotics. Specifically, according to FDA, a medically important antibiotic is given the highest ranking—critically important—if it is used to treat foodborne illness and if it is one of only a few alternatives for treating serious human disease. For example, the fluoroquinolone class of antibiotics is critically important to human medicine because it is used to treat foodborne illnesses caused by the bacteria Campylobacter (one of the most common causes of diarrheal illness in the United States), and it is also one of only a few alternatives for treating serious multidrug resistant infections in humans. Some fluoroquinolones are also approved to treat respiratory infections in cattle. Two federal departments are primarily responsible for ensuring the safety of the U.S. food supply, including the safe use of antibiotics in food animals—HHS and USDA. Each department contains multiple agencies that contribute to the national effort to assess, measure, and track antibiotic use and resistance (see table 1). Both HHS and USDA officials have stated that it is likely that the use of antibiotics in animal agriculture leads to some cases of antibiotic resistance among humans and that medically important antibiotics should be used judiciously in animals. As mentioned, HHS and USDA agencies participate in the Interagency Task Force on Antimicrobial Resistance, which developed a plan in 2001 to help federal agencies coordinate efforts related to antibiotic resistance. The 2001 interagency plan contains 84 action items organized in four focus areas: surveillance, prevention and control, research, and product development. According to the 2001 interagency plan, public health surveillance, which includes monitoring for antibiotic resistance, is the ongoing and systematic collection, analysis, and interpretation of data for use in the planning, implementation, and evaluation of public health practice. Many of the plan’s action items focus on antibiotic use and resistance in humans, and some action items address the use of antibiotics in agriculture, including food animal production, and are directly relevant to this report. For example, one action item in the surveillance focus area states the agencies’ intentions to develop and implement procedures for monitoring antibiotic use in agriculture, as well as in human medicine. Another states that agencies will expand surveillance for antibiotic-resistant bacteria in sick and healthy food animals on farms and at slaughter plants, as well as in retail meat, such as chicken, beef, and pork. The action plan also contains action items related to research on alternatives to antibiotics and providing education to producers and veterinarians about appropriate antibiotic use. Since 2001, HHS and USDA have used the interagency task force to coordinate their activities on antibiotic resistance. For example, each year the task force produces an annual report listing activities completed in that year related to the 2001 interagency plan. The task force recently released a 2010 version of the interagency plan, which is still in draft form but is expected to be finalized this year. The draft 2010 interagency plan contains some new initiatives and also reformulates many of the action items listed in the 2001 plan to be more action-oriented. The 2001 interagency plan discusses two types of data needed to understand antibiotic resistance—data on the amount of antibiotics used in food animals (“use data”) and data on the level of antibiotic resistance in bacteria found in food animals and retail meat (“resistance data”). Agencies have collected some data to track antibiotic use in animals, but these data lack crucial details identified by the 2001 interagency plan as essential for agencies to examine trends and understand the relationship between use and resistance. To collect data on antibiotic resistance, agencies have leveraged existing programs, but because these programs were designed for other purposes, their sampling methods do not yield data that are representative of antibiotic resistance in food animals and retail meat across the United States. USDA also collected data on both use and resistance in a pilot program that was discontinued. The 2001 interagency plan set a “top priority” action item of monitoring antibiotic use in veterinary medicine, including monitoring data regarding species and purpose of use. The plan stated this information is essential for interpreting trends and variations in rates of resistance, improving the understanding of the relationship between antibiotic use and resistance, and identifying interventions to prevent and control resistance. The task force’s draft 2010 interagency plan reiterates the importance of monitoring antibiotic use and sets a goal to better define, characterize, and measure the impact of antibiotic use in animals. Three federal efforts collect data about antibiotic use in food animals (see table 2). One of these efforts, run by FDA, was created by Congress as a reporting requirement for pharmaceutical companies to provide sales data. The other two efforts are run by USDA agencies and collect on-farm data on antibiotic use by incorporating questions into existing surveys of food animal producers. Since our 2004 report, FDA has begun to collect and publish data from pharmaceutical companies on antibiotics sold for use in food animals, as required by the Animal Drug User Fee Amendments of 2008 (ADUFA). Under ADUFA, the sponsor of an animal antibiotic—generally a pharmaceutical company—must report annually to FDA: (1) the amount of each antibiotic sold by container size, strength, and dosage form; (2) quantities distributed domestically and quantities exported; and (3) a listing of the target animals and the approved ways each antibiotic can be used (called indications). Section 105 of ADUFA also directs FDA to publish annual summaries of these data. To fulfill this requirement, FDA published the first of these reports on its public Web site in December 2010. (See app. III for examples of antibiotic sales data collected by FDA.) However, to protect confidential business information, as required by statute, FDA’s report summarizes the sales data by antibiotic class, such as penicillin or tetracycline, rather than by specific drug and also aggregates sales data for antibiotic classes with fewer than three distinct sponsors. In submitting the original ADUFA legislation for the House of Representatives to consider, the House Committee on Energy and Commerce stated that it expected these data to further FDA’s analysis of, among other things, antibiotic resistance, but the data do not include crucial details that would be needed to do so. Specifically, ADUFA does not require FDA to collect information on the species in which antibiotics are used and the purpose of their use. According to representatives of all the producer and public health organizations we spoke with, because FDA’s sales data lack information on the species in which the antibiotic is used, these data do not allow the federal government to achieve the antibiotic use monitoring action item in the 2001 interagency plan, including interpreting trends and variations in rates of resistance, improving the understanding of the relationship between antibiotic use and resistance, and identifying interventions to prevent and control resistance. For example, a representative of one public health organization stated that species-specific data is needed to link antibiotic use in animals with resistance in animals and food. Representatives of most of the public health organizations also stated that the government needs to collect data on the purpose of antibiotic use—that is if the antibiotic is being given for disease treatment, disease control, disease prevention, or growth promotion. Furthermore, representatives of some public health organizations indicated that data on antibiotic use should be integrated with information on antibiotic resistance to allow analysis of how antibiotic use affects resistance. However, a representative of an animal pharmaceutical organization stated that FDA should not attempt to collect national-level antibiotic use data and should instead collect local data to facilitate study of farm management practices in order to help farmers better use antibiotics. According to FDA officials, sales data can provide an overall picture of the volume of antibiotics sold for use in animals. However, FDA faces several challenges in collecting detailed antibiotic sales data from drug sponsors. First, if an antibiotic is approved for use in multiple species, drug sponsors may not be able to determine how much of their product is used in a specific species. Second, if an antibiotic is approved for multiple purposes, drug sponsors also may not be able to determine how much is used for each purpose. Third, antibiotics may be stored in inventory or expire before they are used, so the quantity sold and reported to the FDA may not equal the quantity actually used in animals. FDA officials acknowledged the limitation of their current sales data and noted that the agency is exploring potential approaches to gather more detailed sales data or other information on actual antibiotic use. The United States is the world’s largest producer of beef. The beef industry is roughly divided into two production sectors: cow-calf operations and cattle feeding. Beef cattle are born in a cow-calf operation, where both cows and calves are fed grass in a pasture year-round. Once weaned, most cattle are sent to feedlots, where they are fed grain for about 140 days. The beef industry has become increasingly concentrated. According to USDA, feedlots with 1,000 or more head of cattle comprise less than 5 percent of total feedlots in the United States, but market 80 to 90 percent of fed cattle. Weaning, shipping, and processing put stress on cattle and compromise their immune systems. According to the National Cattleman’s Beef Association, beef producers use antibiotics to treat common illnesses, including respiratory disease, eye infections, intestinal disease, anaplasmosis (a red blood cell parasite), and foot infections. Some cattle producers also use antibiotics for growth promotion. Two USDA agencies collect data on antibiotic use from food animal producers by incorporating questions into existing surveys. One of these surveys, managed by APHIS, is the National Animal Health Monitoring System (NAHMS), a periodic, national survey of producers that focuses on animal health and management practices. APHIS staff collect information from producers on how antibiotics are administered (e.g., in water, feed, or injection), what antibiotics they prefer for various ailments, and in what situations they would use an antibiotic. To collect this information, APHIS staff visit farms multiple times over the course of 3 to 6 months and survey producers’ practices. Previous NAHMS surveys have examined management practices for dairy cows, swine, feedlot cattle, cow-calf operations, small broiler chicken flocks, and egg-laying chicken flocks, among other species. APHIS officials told us that one of NAHMS’ strengths is its national scope and that NAHMS can be used to examine changes in animal management practices, including antibiotic use practices, between NAHMS surveys. However, as we reported in 2004, NAHMS produces a snapshot of antibiotic use practices in a particular species, but the data it collects cannot be used to monitor trends in the amount of antibiotics used over time. According to APHIS officials, these limitations remain today. For example, these officials said that NAHMS is limited by long lag times (approximately 6 years) between surveys of the same species, changes in methodology and survey populations between studies, reliance on voluntary participation by food animal producers, and collection of qualitative, rather than quantitative information on antibiotic use. Since our 2004 report, USDA’s ERS has begun to collect information on antibiotic use through the Agricultural Resource Management Survey (ARMS)—a survey of farms conducted since 1996—though these data have limitations similar to those of NAHMS. ERS uses ARMS data to study how production practices, including antibiotic use, affect financial performance and whether specific production practices can substitute for other production practices. For example, a January 2011 ERS study found that broiler chicken producers who forgo subtherapeutic uses of antibiotics (i.e., use in chickens that are not ill) tend to use distinctly different production practices, such as testing flocks and feed for pathogens, fully cleaning chicken houses between each flock, and feeding chickens exclusively from vegetable sources. However, like NAHMS, ARMS cannot be used to examine trends in antibiotic use over time because ERS does not resurvey the same farms over time or conduct annual surveys on specific commodities. According to officials from agencies and some organizations, it is challenging to collect detailed data on antibiotic use in animals from producers for a variety of reasons. First, producers may not always maintain records on antibiotic use. Second, producers who do collect these data may be reluctant to provide them to the federal government voluntarily. FDA is exploring its legal options for requiring producers to report antibiotic use data to FDA. In addition, we observed during our site visits that the types of use data producers collected varied widely. For example, one producer used electronic systems to track all treatments by individual animal, whereas others maintained paper records, and one maintained no records. Also, some food animal species, such as broiler chickens, are generally produced by integrated companies, which own the chickens from birth through processing and contract with a grower to raise them. These growers often receive feed as part of a contract and may not know whether that feed contains antibiotics. For example, one grower we visited did not know that his animals received antibiotics for growth promotion, though the veterinarian from his integrated company indicated that they did. Surveys, such as NAHMS and ARMS, that rely on producers or growers to provide antibiotic use data may be particularly limited by this lack of available data. Moreover, collecting data on-farm from producers is expensive for the federal agencies involved due to the large amount of personnel and time required. Agencies also face challenges collecting antibiotic use data from other sources. For example, use data gathered from veterinarians may be of limited value because, according to FDA officials, many antibiotics can be purchased without veterinary involvement. In cases where antibiotics do require a prescription, the usefulness of records maintained by veterinarians may vary. For example, one veterinary clinic we visited maintained extensive paper records dating back 2 years, but because they were not electronic, these records would be difficult to analyze. In addition, a veterinary organization we spoke with stated that it would be cumbersome for veterinarians to provide this information to an agency because there is no centralized reporting mechanism, such as an electronic database, for them to do so. According to an official from an organization representing the animal feed industry, feed mills also maintain records on antibiotics mixed into animal feed, including the amount of antibiotic used and the type of feed the antibiotic went into. Although feed mills do not intentionally track antibiotic use by species, the official said that collectively, this information could be used to track antibiotic use by species. However, FDA officials told us that collecting use data from feed mills would require the development of a new reporting mechanism for these data. In 2004, we reported that the federal government collects resistance data through the National Antimicrobial Resistance Monitoring System (NARMS), established in 1996. NARMS is an interagency effort that monitors antibiotic resistance in certain bacteria under three programs: the animal component, led by ARS, samples bacteria from food animals at slaughter plants; the retail meat component, led by FDA, samples retail meat purchased from grocery stores; and the human component, led by CDC, samples bacteria from humans (see table 3). FDA serves as the funding and coordinating agency. From fiscal years 2006 through 2010, the NARMS budget remained constant at $6.7 million, with ARS, FDA, and CDC receiving $1.4 million, $3.5 million, and $1.8 million, respectively. NARMS received a funding increase in fiscal year 2011, to $7.8 million. The 2001 interagency plan contains an action item stating agencies will design and implement a national antibiotic resistance surveillance plan. Among other things, the 2001 interagency plan states that agencies will expand and enhance coordination of surveillance for drug-resistant bacteria in sick and healthy animals on farms, food animals at slaughter plants, and retail meat. The plan also states that collecting data on antibiotic resistance will help agencies detect resistance trends and improve their understanding of the relationship between use and resistance. The draft 2010 interagency plan also reiterates the importance of resistance surveillance and includes several action items aimed at strengthening, expanding, and coordinating surveillance systems for antibiotic resistance. According to WHO’s Surveillance Standards for Antimicrobial Resistance, which provides a framework to review existing antibiotic resistance surveillance efforts, populations sampled for surveillance purposes should normally be representative of the total population—in this case, food animals and retail meat in the United States. Additionally, WHO’s surveillance standards state that it is important to understand the relationship of the population surveyed to the wider population, meaning that agencies should understand how food animals and retail meat surveyed in NARMS are similar to food animals and retail meat throughout the United States. The food animal component of NARMS, led by ARS, gathers bacteria from food animal carcasses at slaughter plants and tests them for antibiotic resistance, but because of a change in sampling method has become less representative of food animals across the United States since we reported in 2004. ARS receives these samples from an FSIS regulatory program called the Hazard Analysis and Critical Control Points (HACCP) verification testing program, which is designed to, among other things, reduce the incidence of foodborne illness. FSIS inspectors work in slaughter plants around the country, where they collect samples from carcasses to test for foodborne pathogens, among other duties. When we last reported on antibiotic resistance in 2004, HACCP verification testing included two sampling programs—a nontargeted program, in which inspectors sampled randomly selected plants, and a targeted program, in which slaughter plants with a higher prevalence of bacteria causing foodborne illness were more likely to be selected for additional sampling. In 2006, FSIS eliminated the random sampling program, which FSIS officials told us has allowed the agency to use its resources more effectively. FSIS now conducts only targeted sampling of food animals in its HACCP verification testing. This nonrandom sampling method means the NARMS data obtained through HACCP are not representative of food animals across the country and cannot be used for trend analysis because bacteria tested by NARMS are now collected at greater rates from slaughter plants that are not in compliance with food safety standards. According to FDA officials, due to this sampling method, the resulting data are skewed for NARMS purposes. The NARMS retail meat component, led by FDA, collects samples of meat sold in grocery stores and tests them for antibiotic-resistant bacteria, but these samples may not be representative of retail meat throughout the United States. The program began in 2002 and has since expanded to collect retail meat samples from 11 states: the 10 participant states in CDC’s FoodNet program, which conducts surveillance for foodborne diseases, plus Pennsylvania, which volunteered to participate in retail meat sampling (See table 3 for the types of bacteria tested). Due to its nonrandom selection of states, FDA cannot determine the extent to which NARMS retail meat samples are representative of the United States. FDA collects bacteria from those states that volunteer to participate in the program, so some regions of the country are not represented in the NARMS retail meat program. According to the FDA Science Advisory Board’s 2007 review of NARMS, this lack of a national sampling strategy limits a broader interpretation of NARMS data. According to FDA officials, FDA has not analyzed how representative these samples are of the national retail meat supply in the United States but officials believe that the samples provide useful data that serves as an indicator for monitoring US retail meat. FDA is aware of the sampling limitations in NARMS and has articulated a strategic goal of making NARMS sampling more representative and applicable to trend analysis in a draft 2011-2015 NARMS Strategic Plan, which was released for public comment in January 2011. The comment period closed in May 2011, and FDA is currently making changes to the plan based on the submitted comments. The plan states that NARMS will become more representative by, among other things, modifying its animal sampling to overcome the biases resulting from the current reliance on HACCP verification testing and improving the geographic representation of retail meat testing, though FDA has not yet planned specific actions to achieve this goal. According to FDA officials, in light of increased funding for NARMS in 2011, they are exploring ways to improve NARMS sampling to make it more representative. FDA hosted a public meeting in July 2011 to solicit public comment on NARMS animal and retail meat sampling improvements. At this meeting, ARS officials discussed two new on-farm projects—one pilot project, in collaboration with FDA, plans to collect samples from feedlot cattle, dairy cows, and poultry with the goal of evaluating potential sampling sites within the food animal production chain (e.g., on farms or in holding pens at slaughter plants). The second project is in collaboration with Ohio State University and plans to use industry personnel to collect samples from poultry and swine producers. Both projects will test samples for antibiotic resistance through NARMS. Some of the additional suggestions discussed during this meeting included changing FSIS sampling to provide more representative data to NARMS, discontinuing slaughter plant sampling altogether in favor of an on-farm sampling program, and increasing the number of state participants in the retail meat sampling program. The NARMS human component, led by CDC, collects and tests bacteria from health departments in all 50 states and the District of Columbia. We reviewed the issue of antibiotic resistance and antibiotic use in humans in 2011. This review examined, among other things, the human component of NARMS and concluded that CDC’s data is nationally-representative for four of the five bacteria included in the program. In our interviews, representatives of producer and public health organizations identified several challenges associated with collecting data on antibiotic resistance. First, according to representatives from most public health organizations, ARS, FDA, and CDC are limited by available funding. Sampling and testing bacteria can be expensive, and agencies have to balance competing priorities when allocating resources. For example, in the NARMS retail meat program, FDA could choose to expand retail meat sampling geographically by adding new states to the program, expand the number of bacteria tested, expand the number of samples collected, or expand the types of meat sampled. Second, according to representatives of several producer and public health organizations, agencies may face challenges cooperating and reaching consensus with one another. For example, NARMS reports do not include interpretation of resistance trends across NARMS components. Specifically, while NARMS issues annual Executive Reports that combine data from all three components of NARMS (available on FDA’s Web site), these reports do not provide interpretation of NARMS data. According to FDA officials, it is difficult to develop consensus on interpretation for these reports because agencies differ in their interpretations and preferred presentations of NARMS data. Third, according to the FDA Science Advisory Board’s 2007 review of NARMS, the lag between NARMS data collection and report issuance can sometimes be excessive. For example, as of August 2011, the latest NARMS Executive Report covered 2008 data. According to FDA and CDC officials, the process of testing bacteria, analyzing and compiling data, and obtaining approval from agencies is time-consuming and increases the lag time of NARMS reports. In our interviews, representatives of public health organizations also suggested that federal agencies collect additional types of resistance data. First, representatives of several organizations suggested that agencies expand the types of bacteria tested for antibiotic resistance. FDA is aware of this suggestion and has considered whether to add to the types of bacteria it tests. For example, recent studies have discussed methicillin-resistant Staphylococcus aureus (MRSA) in retail meat. MRSA is a type of bacteria that is resistant to several antibiotics, including penicillin, and that can cause skin infections in humans and more severe infections in health care settings. In response, FDA is conducting a pilot study to collect data on the prevalence of MRSA in retail meat. However, according to FDA officials, FDA is unlikely to include MRSA in its regular NARMS testing because general consensus in the scientific community is that food does not transmit community-acquired MRSA infections in humans. Second, representatives of three public health organizations suggested that federal agencies link resistance data with data on outbreaks of foodborne illness in humans, which representatives of one organization stated could help scientists document the link between animal antibiotic use and resistant outbreaks of foodborne illness. According to representatives of this organization, NARMS’ resistance data are not currently linked to information about foodborne disease outbreaks. According to CDC officials, CDC tests bacteria associated with foodborne illness outbreaks in humans for antibiotic resistance, but does not routinely publish these data. When we last reported on antibiotic resistance in 2004, APHIS, ARS, and FSIS collected on-farm use and resistance data from 40 swine producers through the pilot Collaboration in Animal Health and Food Safety Epidemiology (CAHFSE), but this program faced challenges in collecting data and was discontinued in 2006 due to lack of funding. By collecting information from the same facilities over time, agencies could use CAHFSE data to examine the relationship between antibiotic use and resistance. However, according to officials at APHIS and ARS, collecting quarterly on-farm data was burdensome and generated a large number of bacterial samples, which were costly to test and store. Although the agencies wanted to use CAHFSE to monitor antibiotic resistance throughout the food production system, officials from all three agencies told us that this “farm to fork” monitoring raised logistical challenges. For example, FSIS officials examined the feasibility of monitoring resistance data through the slaughter plant but discovered that slaughter plants were reluctant to participate in the program due to fear of enforcement actions and confidentiality concerns. According to APHIS officials, CAHFSE released quarterly and annual data summaries, but it did not issue an overall capping report or formal evaluation of the program. CAHFSE was discontinued, but NAHMS continues to collect three types of bacteria (Salmonella, Campylobacter, and E. coli) from a subset of surveyed producers and sends them to ARS for antibiotic resistance testing. However, as discussed earlier in this report, NAHMS data provide a snapshot of a particular species but cannot be used to monitor trends. Additionally, as discussed earlier in this report, ARS has started two on- farm projects to collect bacteria from food animals. In one of these projects, which collects samples from poultry and swine, ARS partners with integrated companies to collect a variety of samples from producers. According to an ARS official, because personnel to collect samples were responsible for the majority of costs in the CAHFSE program, using industry personnel rather than ARS staff to collect on-farm samples can significantly reduce the costs of on-farm sampling. Although data on both use and resistance can be difficult to collect, other countries have been successful in doing so. For example, the Canadian government’s Canadian Integrated Program on Antimicrobial Resistance Surveillance (CIPARS), created in 2002, provides an example of on-farm collection of antibiotic use and resistance data. In addition to gathering resistance data similar to NARMS, CIPARS also has an on-farm component, which collects antibiotic use information annually from about 100 swine producers and integrates it with data from resistance testing on fecal samples from the same farms. CIPARS addresses funding limitations by restricting on-farm surveillance to swine, sampling annually rather than quarterly, and collecting slaughter plant samples through industry personnel. A CIPARS official stated that the program’s on-farm data could be used to link antibiotic use and antibiotic resistance at the herd level and help identify interventions to prevent antibiotic resistance. CIPARS issues annual reports, which include interpretation of the data such as discussions of trends over time. For example, the most recent report, from 2007, noted an increase in the percentage of bacteria resistant to several antibiotics in samples collected from pigs at slaughter plants from 2003 to 2007. Denmark also has a use and resistance data collection system, called the Danish Integrated Antimicrobial Resistance Monitoring and Research Program (DANMAP). Data collection covers antibiotic use in food animals and humans, as well as antibiotic resistance in food animals, meat in slaughter plants and at retail, and in humans. The objectives of DANMAP are to monitor antibiotic use in food animals and humans; monitor antibiotic resistance in bacteria from food animals, food of animal origin, and humans; study associations between antibiotic use and resistance; and identify routes of transmission and areas for further research studies. According to DANMAP officials, Denmark achieves these goals by gathering data on veterinary prescriptions, since all antibiotic use in Denmark is via prescription-only. For veterinary prescriptions, these officials told us Denmark gathers data on the medicine being prescribed, the intended species and age group in which the prescription will be used, the prescribed dose of the antibiotic, the prescribing veterinarian, and the farm on which the prescription will be used. Further, DANMAP collects information on antibiotic resistance in food animals, from healthy animals at slaughter plants and from diagnostic laboratory submissions from sick animals. Denmark also gathers both domestically produced and imported retail meat samples from throughout the country to test for antibiotic resistance. DANMAP officials noted that, in Denmark, the industry is responsible for collecting and submitting bacterial samples from slaughter plants for testing, according to a voluntary agreement, and that the industry spends additional funds to do so. DANMAP issues annual reports, which include interpretation of data on antibiotic use in animals and humans, as well as data on antibiotic resistance in bacteria from food animals, retail meat, and humans. Some DANMAP reports also include more detailed analysis of particular areas of interest. For example, the 2009 DANMAP report examined E. coli resistant to penicillins in pigs, retail meat, and humans and found that antibiotic use in both animals and humans contributes to the development of penicillin-resistant E. Coli. See appendix IV for more information on DANMAP. FDA implemented a risk assessment process for antibiotic sponsors, generally pharmaceutical companies, to mitigate the risk of resistance in food animals to antibiotics approved since 2003. However, the majority of antibiotics used in food animals were approved prior to 2003, and FDA faces significant resource challenges in assessing and mitigating the risk of older antibiotics. Instead, FDA has proposed a voluntary strategy to mitigate this risk but has neither developed a plan nor collected the “purpose of use” data necessary to measure the effectiveness of its strategy. FDA approves for sale, and regulates the manufacture and distribution of, drugs used in veterinary medicine, including drugs given to food animals. Prior to approving a new animal drug application, FDA must determine that the drug is safe and effective for its intended use in the animal. It must also determine that the new drug intended for animals is safe with regard to human health, meaning that there is reasonable certainty of no harm to human health from the proposed use of the drug in animals. FDA may also take action to withdraw an animal drug when new evidence shows that it is not safe with regard to human health under the approved conditions of use. In 2003, FDA issued guidance recommending that antibiotic sponsors include a risk assessment of any new antibiotics for use in food animals. The guidance is known as Evaluating the Safety of Antimicrobial New Animal Drugs with Regard to Their Microbiological Effects on Bacteria of Human Health Concern, Guidance for Industry #152. Under this framework, an antibiotic sponsor would assess three factors: the probability that the resistant bacteria are present in the animal as a consequence of the antibiotic use, the probability that humans would ingest the bacteria in question, and the probability that human exposure to resistant bacteria would result in an adverse health consequence. As part of the third factor, the sponsor considers the importance of the antibiotic to treating human illness, under the assumption that the consequences of resistance are more serious for more important antibiotics. The guidance provides a preliminary ranking of antibiotics considered medically important to human medicine, with the highest ranking assigned to antibiotics deemed “critically important” if it is (1) used to treat foodborne illness and (2) one of only a few alternatives for treating serious human disease. An antibiotic is considered highly important if it meets one of these two criteria. By considering all three factors, the sponsor estimates the overall risk of the antibiotic’s use in food animals adversely affecting human health. Though this risk assessment process is recommended by FDA, the antibiotic sponsor is free to prove the safety of a drug in other ways and to consult with FDA to decide if the approach is recommended for its animal antibiotic application. FDA officials said that, in practice, the risk of antibiotic resistance is considered as part of any new animal antibiotic approval. According to FDA documents, this risk assessment process has been effective at mitigating the risk of resistance posed by new antibiotics because antibiotic sponsors usually consider the risk assessment process in their product development, so the products ultimately submitted for approval are intended to minimize resistance development. Representatives of some producer, public health, and veterinary organizations, as well as an animal pharmaceutical organization, told us that they were generally satisfied with the risk assessment approach. For example, a representative of an animal pharmaceutical organization commented that the risk assessment process was helpful in that it provided a clear road map for drug approvals. Representatives of a veterinary organization said they were pleased that new antibiotics were examined using a comprehensive, evidence-based approach to risk assessment. However, several organizations also raised concerns. For instance, a representative of an animal pharmaceutical organization said that FDA’s risk assessment process was an overly protective “blunt instrument,” since FDA would likely not approve any antibiotic product designed for use in feed to prevent or control disease in a herd or flock if the antibiotic is critically important to human health. Representatives from this pharmaceutical organization and a veterinary organization said that FDA’s guidance makes it very difficult for antibiotic sponsors to gain approval for new antibiotics for use in feed or water. In addition, representatives of several public health organizations said that flaws in the criteria FDA used to rank medically important antibiotics may lead the agency to the inappropriate approval of animal antibiotics. For example, they identified a class of antibiotics known as fourth- generation cephalosporins, which are an important treatment for pneumonia in humans and one of the sole therapies for cancer patients with certain complications from chemotherapy. However, since neither of these are also foodborne diseases, under FDA criteria this antibiotic is not ranked as critically important in treating human illness, which these organizations said could lead to the approval of fourth-generation cephalosporins for use in food animals and, eventually, increased antibiotic resistance. FDA officials recently said they intend to revisit the antibiotic rankings to reflect current information. However, FDA officials noted that they believed the current ranking appropriately focused on antibiotics used to treat foodborne illnesses in humans given that the objective of the guidance was to examine the risk of antibiotic use in food animals. According to FDA officials, the majority of antibiotics used in food animals were approved prior to 2003. FDA faces significant challenges to withdraw agency approval, either in whole or in part, of these antibiotics if concerns arise about the safety of an antibiotic. If FDA initiates a withdrawal action because of safety questions that have arisen after an antibiotic’s approval, the agency has the initial burden of producing evidence sufficient to raise serious questions about the safety of the drug. Once FDA meets this initial burden of proof, the legal burden then shifts to the antibiotic sponsor to demonstrate the safety of the drug. If, after a hearing, the FDA Commissioner finds, based on the evidence produced, that the antibiotic has not been shown to be safe, then the product approval can be withdrawn. FDA’s 5-year effort to withdraw approval for one antibiotic for use in poultry illustrates the resource-intensive nature of meeting the legal burden to withdraw an approved antibiotic. It is the only example of FDA withdrawing an antibiotic’s approval for use in food animals because of concerns about resistance. Specifically, Enrofloxacin, approved in October 1996, is in the critically important fluoroquinolone class of antibiotics, used to treat foodborne illnesses caused by the bacteria Campylobacter, and it was used in poultry flocks via the water supply to control mortality associated with E. coli and other organisms. In October 2000, based on evidence of increased fluoroquinolone resistance in bacteria from animals and humans, FDA initiated a proceeding to withdraw its approval for the use of two types of fluoroquinolones in poultry. One pharmaceutical company voluntarily discontinued production, but the manufacturer of enrofloxacin challenged the decision. FDA officials told us that it took significant time and resources to gather evidence for the case, even though they had good data showing a correlation between the drug’s approval for use in poultry and increasing resistance rates in humans. After an administrative law judge found that enrofloxacin was not shown to be safe for use in poultry as previously approved, the FDA’s Commissioner issued the final order withdrawing approval for its use effective September 2005. FDA officials said that from this case they learned that taking a case-by- case approach to withdrawing antibiotics due to concerns over resistance was time-consuming and challenging. In our 2004 review of federal efforts to address antibiotic resistance risk, we reported FDA was planning to conduct similar risk assessments of other previously approved antibiotics. FDA officials estimated, however, that the enrofloxacin withdrawal cost FDA approximately $3.3 million, which they said was significant. FDA officials told us that conducting individual postapproval risk assessments for all of the antibiotics approved prior to 2003 would be prohibitively resource intensive, and that pursuing this approach could further delay progress on the issue. Instead of conducting risk assessments for individual antibiotics approved prior to 2003, FDA in June 2010 proposed a strategy to promote the “judicious use” of antibiotics in food animals. FDA proposed the strategy in draft guidance titled The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals, draft Guidance for Industry #209. FDA describes judicious uses as those appropriate and necessary to maintain the health of the food animal. The draft guidance includes two principles aimed at ensuring the judicious use of medically important antibiotics. First, that antibiotic use is limited to uses necessary for assuring animal health—such as to prevent, control, and treat diseases. Second, that animal antibiotic use is undertaken with increased veterinary oversight or consultation. To implement the first principle, FDA is working with antibiotic sponsors to voluntarily phase out growth promotion uses of their antibiotics. FDA officials told us they have met with four of the approximately nine major antibiotic sponsors to discuss withdrawing growth promotion uses from their antibiotics’ labels and that they plan to engage with generic antibiotic manufacturers in the near future. To implement the second principle of increasing veterinarian oversight of antibiotic use, FDA officials told us that they would like to work with antibiotic sponsors to voluntarily change the availability of medically important antibiotics currently approved for use in feed from over the counter to veterinary feed directive (VFD) status. The majority of in-feed antibiotics are currently available over the counter, but VFD status would instead require these antibiotics to be used with the professional supervision of a licensed veterinarian. In March 2010, FDA issued an advance notice of proposed rulemaking announcing its intention to identify possible changes to improve its current rule on VFDs and seeking public comments on how to do so. FDA officials told us that they received approximately 80 comments by the end of the comment period in August 2010 from interested parties on how to improve the VFD rule, and were taking them into consideration as they drafted the rule, which they hope to publish in 2011. In April 2011, the American Veterinary Medicine Association also formed a new committee to help FDA develop practical means to increase veterinary oversight of antibiotic use. Representatives of several producer organizations, veterinary organizations, and an animal pharmaceutical organization expressed concern that FDA’s focus on ending growth promotion uses would adversely affect animal health. In particular, these representatives said that some animal antibiotics approved for growth promotion may also prevent disease, though they are not currently approved for that purpose. FDA officials said that, in cases where pharmaceutical companies can prove such claims, FDA would be willing to approve these antibiotics for disease prevention. FDA officials emphasized, however, that they do not want companies to relabel existing growth promotion antibiotics with new disease prevention claims with no substantive change in the way antibiotics are actually used on the farm. FDA officials told us they plan to issue additional guidance for antibiotic sponsors to outline a specific process for making changes in product labels. Furthermore, representatives of several producer and veterinary organizations we spoke with expressed concerns about FDA’s efforts to increase veterinary oversight because there is shortage of large animal veterinarians. As we reported in February 2009, there is a growing shortage of veterinarians nationwide, particularly of veterinarians who care for food animals, serve in rural communities, and have training in public health. Additionally, representatives of veterinary organizations said that the paperwork requirements under VFDs are onerous. In particular, this is because VFDs require the veterinarian to deliver a copy of the VFD to the feed producer directly for each VFD, and there are not yet many systems for electronic distribution. In addition, representatives of several public health organizations expressed concern that FDA’s strategy will not change how antibiotics are used for two reasons. First, because FDA is depending on voluntary cooperation to remove growth promotion uses from antibiotic labels, there is no guarantee that pharmaceutical companies will voluntarily agree to relabel their antibiotics. To underline the seriousness of their concerns, in May 2011, several public health organizations filed a suit to force FDA to withdraw its approval for the growth promotion uses of two antibiotic classes (penicillins and tetracyclines). Second, representatives of some public health organizations noted that several medically important antibiotics (six out of eight) currently approved by FDA for growth promotion or feed efficiency are already approved for disease prevention uses in some species (see table 4), which could negate the impact of FDA’s strategy. Because disease prevention dosages often overlap with growth promotion dosages, representatives of one of these organizations said that food animal producers might simply alter the purpose for which the antibiotics are used without altering their behavior on the farm. One veterinarian told us that if FDA withdrew an antibiotic’s approval for growth promotion, he could continue to give the antibiotic to the animals under his care at higher doses for prevention of a disease commonly found in this species. The veterinarian stated that there is an incentive to do so because using an animal antibiotic can help the producers he serves use less feed, resulting in cost savings. For example, the in-feed antibiotic may cost approximately $1 per ton of feed, but it can save $2 to $3 per ton of feed, making it an effective choice for the producer. Although representatives of some producer and public health organizations have raised doubts about the effectiveness of FDA’s strategy, FDA does not have a plan to collect the data necessary to understand the purpose for which antibiotics are being used or have a plan to measure the effectiveness of its strategy to encourage more judicious use of antibiotics in animals. FDA officials told us the agency will consider this strategy to be successful when all the growth promotion uses of medically important antibiotics are phased out. FDA officials were unable to provide a timeline for phasing out growth promotion uses, though they identified several next steps FDA intends to take, such as finalizing the guidance document describing their voluntary strategy and issuing additional guidance on its implementation, as well as proceeding forward with the VFD rulemaking process. However, FDA officials stated that the agency had no further plans to measure its progress. In addition, FDA will still allow medically important antibiotics to be used for disease prevention. However, because agency data on sales of antibiotics used in food animals do not include the purpose for which the antibiotics are used, it will be difficult for FDA to evaluate whether its strategy has increased the judicious use of antibiotics or simply encouraged a shift in the purpose of use—for instance, from growth promotion to disease prevention—without lessening use. FDA officials told us the agency is exploring approaches for obtaining additional information related to antimicrobial drug use to enhance the antibiotic sales data that is currently reported to FDA as required by ADUFA, but did not provide a timeline for these efforts. USDA and HHS agencies have taken some steps to research alternatives to current antibiotic use practices and educate producers and veterinarians on appropriate use of antibiotics but the extent of these steps is unclear because neither USDA nor HHS has assessed the progress toward fulfilling the related action items in the 2001 interagency plan. An action item in the 2001 interagency plan states that federal agencies will promote the development of alternatives to current antibiotic use, including through research. According to the 2001 interagency plan, such alternatives could include researching vaccines and management practices that prevent illnesses or reduce the need for antibiotic use. However, USDA has not tracked its activities in this area, and neither USDA nor HHS has determined progress made toward this action item. Since 2001, USDA agencies have undertaken some research related to developing alternatives. However, according to agency officials they are unable to provide a complete list of these activities because USDA’s research database is not set up to track research at this level of detail. Instead, research is categorized within the larger food safety research portfolio. In addition, the agencies did not report any activities under this action item in the annual reports published by the interagency task force. Based on documents provided by USDA and research activities that USDA reported to the interagency task force under other research action items, we identified 22 projects the department funded since 2001 related to alternatives to current antibiotic use practices, with total funding of at least $10 million (see app. V). In addition, ARS officials emphasized that the majority of research performed at ARS related to improving agricultural practices can result in reduced antibiotic needs by producers. Officials from both NIFA and ARS said that they had not assessed the extent to which the research conducted helped achieve the action item in the 2001 interagency plan. Indeed, conducting such an assessment would be difficult without a complete list of relevant research activities. NIFA officials told us that additional funding and resources would be needed to conduct such an assessment, but they did not provide more specific details on how many additional resources would be needed to do so. Although an assessment of research activities on alternatives has not been conducted, ARS officials nevertheless said the agency plans to conduct more research on alternatives to antibiotics in the next 5 years. Similar to USDA agencies, HHS agencies have conducted some research on alternatives. Specifically, from 2001 through 2005, CDC and FDA sponsored at least five research grants that included funding to research alternatives and reduce resistant bacteria in food animals (see app. VI). NIH has conducted research related to antibiotic resistance that may have applications in both humans and in animals, but agency officials told us that NIH considers human health issues its research priority. Like USDA agencies, HHS agencies did not report any research activities under the action item related to antibiotic alternatives to the interagency task force. No HHS agency has sponsored any such research activities since 2005. HHS officials told us this is because USDA may be the most appropriate lead agency for undertaking alternatives research related to food animals. USDA officials acknowledged that they have a role in researching alternatives to antibiotics, although they said that it is also important for HHS to be involved since FDA would likely be the regulatory agency to approve any products resulting from such research. CDC and FDA officials told us that their agencies have not performed any assessments to determine whether their research activities have helped the agency to fulfill this action item in the 2001 interagency plan. Representatives of the national veterinary, producer, public health, and animal pharmaceutical organizations that we spoke with told us that greater federal efforts are needed to research alternatives to current antibiotic use in animals. In addition, representatives from most of the veterinary and several public health organizations we spoke with said that the federal government should make greater efforts to coordinate with the food animal industry about researching alternatives to current antibiotic use. Specifically, most representatives from the producer and veterinary organizations emphasized a need for the federal government to provide funding and other resources to the food animal industry for research projects looking at alternatives. For example, representatives from one veterinary organization told us that several national producer and veterinary organizations have goals of utilizing prevention as an alternative to antibiotic use and said that the federal government could help by conducting research on preventive measures such as vaccine development. The draft 2010 interagency plan includes an action item reiterating that agencies will conduct research on alternatives to current antibiotic use practices, yet USDA and HHS agencies have not evaluated their previous research to determine the extent to which the action item in the 2001 interagency plan was achieved. Without an assessment of past research efforts, agencies may be limited in their ability to identify gaps where additional research is needed. In addition, the draft 2010 interagency plan does not identify steps agencies intend to take to conduct research on alternatives or time frames for taking these steps. In contrast, other action items listed in the draft 2010 interagency plan under the surveillance, prevention and control, and product development focus areas include specific implementation steps illustrating how agencies plan to achieve them. CDC officials told us that the interagency task force agreed not to identify implementation steps until after the final version of the 2010 interagency plan is published, at which time the task force will publish its plans for updating the 2010 interagency plan. In addition, ARS officials said that the interagency task force requested agencies to identify implementation steps that could be accomplished within the next 2 years, and USDA was unable to determine such steps for alternatives research. We have previously reported that evaluating performance allows organizations to track the progress they are making toward their goals, and it gives managers critical information on which to base decisions for improving their programs. Tracking progress and making sound decisions is particularly important in light of the fiscal pressures currently facing the federal government. An action item in the 2001 interagency plan states that federal agencies will educate producers and veterinarians about appropriate antibiotic use. Programs at both HHS and USDA have sought to educate users about appropriate antibiotic use, but the impact of these efforts has not been assessed. In addition, agricultural extension agents and national associations also advise producers on appropriate antibiotic use. The draft 2010 interagency plan no longer has an explicit action item related to appropriate antibiotic use education. There is currently one education activity on appropriate antibiotic use, and after the completion of this effort, there are no plans to develop new education activities. HHS agencies sponsored six programs to educate producers and veterinarians about appropriate antibiotic use, the last of which ended in 2010 (see table 5). For example, from 2001 through 2010 CDC funded “Get Smart: Know When Antibiotics Work on the Farm”—also called Get Smart on the Farm—an outreach program that sponsored state-based producer education activities to promote appropriate antibiotic use. CDC officials told us that this was one of the first major education efforts to bring together stakeholders from the public health, veterinary, and agricultural communities to discuss the issue of appropriate antibiotic use. Through the Get Smart on the Farm program, CDC hosted three national animal health conferences designed to foster partnerships between these stakeholders. These conferences included discussions of antibiotic use and resistance in animals. Get Smart on the Farm also funded the development of an online curriculum for veterinary students on antibiotic resistance and appropriate use, which became available in December 2010. CDC officials told us that the agency is planning to take an advisory rather than leadership role in future appropriate use education efforts because they believe that FDA and USDA are the appropriate agencies for leading such efforts. CDC reported that it spent approximately $1.7 million on Get Smart on the Farm activities from 2003 through 2010. Both CDC and FDA officials said that the impact of their education activities had not been assessed. HHS officials also said that they currently do not have plans to develop new activities in the future. USDA agencies also sponsored education programs addressing appropriate antibiotic use in animals (see table 6). For example, from 2002 through 2005, USDA agencies worked with FDA to fund university- based programs that sought to educate producers on animal health issues, including antibiotic resistance. From 2006 through 2010 USDA agencies did not report any activities under this action item in the annual reports published by the interagency task force. However, officials noted that education on appropriate antibiotic use remains a priority and that during these years USDA gave presentations at scientific meetings and universities on this topic. USDA officials said the impact of these education efforts was not assessed. The one ongoing USDA appropriate antibiotic use education activity is an APHIS-funded training module on antibiotic resistance currently under development at a cost of $70,400. According to agency officials, the module will be similar to CDC’s online curriculum for veterinary students. It will be 1 of 19 continuing education modules for the National Veterinary Accreditation Program, which is designed to train veterinarians to assist the federal government with animal health and regulatory services. The program requires participating veterinarians to periodically renew their accreditations by completing continuing education modules online or at conferences, and participants may elect which APHIS-approved modules to take in order to fulfill their requirements. Since the APHIS module will be similar to CDC’s online curriculum for veterinary students, APHIS officials told us that they will look at CDC’s content to determine whether or not to incorporate it into the APHIS-funded module. APHIS officials also told us that they sought out representatives from NIFA, FDA, CDC, the American Veterinary Medical Association, and academic institutions to review the module’s content, and expect the training to be available for veterinarians by June 2012. APHIS officials told us that the module on appropriate antibiotic use is not within the National Veterinary Accreditation Program’s traditional scope of work. More specifically, APHIS officials are unsure how they would measure the impact of the module because, unlike the other modules in the accreditation program, it is not based on any APHIS regulatory information that can be tracked. That said, officials told us providing antibiotic use education is beneficial and will increase practitioners’ awareness in this area. After the completion of the antibiotic use module, USDA officials said they have no plans to develop new education activities. Additional USDA-funded education activities on appropriate antibiotic use may be conducted through local extension programs. Each U.S. state and territory has a Cooperative Extension office at its land-grant university, as well as a network of local or regional extension offices staffed by one or more experts who provide research-based information to agricultural producers, small business owners, youth, consumers, and others in local communities. NIFA provides federal funding to the extension system, though states and counties also contribute to the program. NIFA provides program leadership and seeks to help the system identify and address current agriculture-related issues. Two producers told us that extension programs are a helpful source of information about animal health issues. For example, they said that extension agents are very helpful in disseminating information, though their impact may be difficult to measure. In addition, they told us that when producers are successful with a preventative practice suggested by an extension agent, neighboring producers may notice and also make similar modifications, creating a multiplier effect. Two current extension agents also told us they have received inquiries from producers about antibiotic use, although these questions are not necessarily framed as appropriate use. NIFA officials told us that federally funded extension institutions submit an annual plan of work and an annual accomplishment report that provides a general overview of their yearly planned projects based on USDA priorities, but these plans are broad in nature and often do not provide details that allow NIFA to track efforts related to antibiotic use. Representatives from most of the producer and veterinary organizations that we spoke with said that industry-led efforts are responsible for most of the progress made in educating producers and veterinarians in the last 10 years. For example, the National Cattlemen’s Beef Association, National Milk Producers’ Federation, and National Pork Board have each developed Quality Assurance programs that advise producers on their views of proper antibiotic use during production. Representatives from most of the organizations we spoke with said that the federal government should have some type of role in educating producers and veterinarians on appropriate antibiotic use, but many—including representatives from all of the producer organizations—said that they believe that these activities should be done in collaboration with industry. Representatives from most of the veterinary and producer organizations also said the federal government could improve collaboration with industry members and groups, and representatives from one veterinary organization pointed to previous federal education efforts to collect and disseminate information about avian influenza as collaborative education efforts federal agencies could model for appropriate use messages. Representatives from this organization noted that such efforts included the federal government and other industry stakeholders working together and disseminating education messages to the public. They also suggested that similar efforts between the federal government, producers, and researchers could be used to educate the industry about appropriate use of antibiotics in food animals. Since 1995, the EU and Denmark have taken a variety of actions to regulate antibiotic use in food animals and mitigate the risk such use may pose to humans. Denmark is part of the EU and complies with EU policies but has also taken some additional actions independently. Some of the experiences in the EU and Denmark may be useful for U.S. government officials and producers, though U.S. producers face different animal health challenges and regulatory requirements than European producers. From 1995 to 2006, both the EU and Danish governments took a variety of actions to regulate antibiotic use in food animals (see fig. 2). In 1995, Denmark banned the use of avoparcin for growth promotion in food animals, and an EU-wide ban followed in 1997. Avoparcin is similar to the human medicine vancomycin, and some studies suggested that avoparcin use in food animals could be contributing to vancomycin- resistant bacteria in humans. Both Denmark and the EU followed up with bans on several additional growth promotion antibiotics, culminating in a total ban on growth promotion antibiotics in 2000 and 2006, respectively. Government and industry officials we spoke with in Denmark emphasized that their bans on growth promotion antibiotics began as voluntary industry efforts that were later implemented as regulations by the government. EU officials and both industry and government officials from Denmark said the most important factor in the development of their policies was sustained consumer interest in the issue of antibiotic use in food animals and concerns that such use could cause resistance affecting humans. In the face of these concerns, officials explained that EU policies were developed based in part on the precautionary principle, which states that where there are threats of serious or irreversible damage, lack of scientific certainty should not postpone cost-effective measures to reduce risks to humans. Danish industry officials added that, as new data and knowledge arise, it is appropriate to reevaluate the measures taken to reduce risks. We have previously reported that the EU made other food safety decisions based on the precautionary principle, including decisions about inspecting imports of live animal and animal products, such as meat, milk, and fish. According to Danish government officials, Denmark has implemented two additional types of regulations regarding antibiotic use in food animals. First, Denmark has increased government oversight of veterinarians and producers. For example, in 1995, Denmark limited the amount that veterinarians could profit on sales of antibiotics. Then, in 2005, Denmark implemented policies requiring biannual audits of veterinarians who serve the swine industry, which Danish government officials said uses about 80 percent of all food animal antibiotics in Denmark. Government officials said these audits increase veterinarians’ awareness of their antibiotic prescription patterns. In 2007 the audits were expanded to cover all food animal veterinarians. Most recently, in 2010, Denmark developed a new system—called the yellow card initiative—which sets regulatory limits on antibiotic use based on the size of swine farms. Swine farms exceeding their regulatory limit are subject to increased monitoring by government officials, which they must pay for. Danish government officials explained that the yellow card initiative is different from their past oversight efforts in that it targets producers rather than veterinarians. Second, according to Danish government officials, Denmark developed a policy to reduce veterinary use of antibiotics classified as critically important to human medicine by WHO, which like FDA, has a ranking of such antibiotics. For example, in 2002 Denmark limited veterinary prescriptions of fluoroquinolones to cases in which testing showed that no other antibiotic would be effective at treating the disease. In addition, veterinarians prescribing fluoroquinolones to food animals would need to notify government regulatory officials. U.S. producers face different animal health challenges and regulatory requirements than producers in the EU and Denmark, making it difficult to determine how effectively similar policies could be implemented in the United States. Specifically, industry officials in Denmark explained that several diseases that affect producers in the United States are no longer active in Denmark. For example, broiler chicken producers in Denmark spent many years improving their biosecurity and successfully eradicated Salmonella, which can cause disease both in broiler chickens and in humans, and Danish cattle producers do not have to worry about brucellosis, which has not been seen in Denmark in decades. Similarly, the regulatory environment in the EU differs from that in the United States. For example, EU countries develop and implement policies using the precautionary principle. In addition, the EU and Denmark both require prescriptions for the use of most antibiotics in animals, but the United States requires them in certain limited circumstances. Officials from HHS and USDA said they are aware of other countries’ efforts to regulate antibiotic use in food animals and participate in international conferences and meetings addressing these issues. Based on the experiences in the EU and Denmark, there are several lessons that may be useful for U.S. government officials and producers. According to Danish government officials, Denmark’s antibiotic use data are detailed enough to allow the country to track trends in use and monitor the effects of their policies. Specifically, data show that antibiotic use in food animals declined from 1994 to 1999, but then it increased modestly from 1999 to 2009, while remaining below 1994 levels (see fig. 3). The decline coincides with the start of the changes to government policies on growth promotion and veterinarian sales profits. Danish industry and government officials noted some of the increase in antibiotic use over the last decade may be in response to disease outbreaks on swine farms. Danish government officials also mentioned, however, that the government instituted the 2010 yellow card initiative to reverse the recent increase in antibiotic use. According to these officials, antibiotic use in pig production fell 25 percent from June 2010 to June 2011 in response to the implementation of the yellow card initiative. According to Danish officials, Danish data on antibiotic resistance in food animals and retail meat show reductions in resistance after policy changes in most instances. Specifically, Danish government officials have tracked resistance to antibiotics banned for growth promotion among Enterococcus bacteria since the mid-1990s. Enterococcus are commonly found in the intestinal tract of humans and food animals, making them relatively easy to track over time, though they rarely cause disease. Officials said that the percentage of Enterococcus from food animals that are resistant to antibiotics banned for growth promotion has decreased since the bans were implemented. Officials also mentioned declines in resistance among Campylobacter bacteria (which can cause foodborne illness in humans) from food animals and retail meat. For example, officials said that resistance to the critically important class of drugs called macrolides has decreased in Campylobacter bacteria from swine. However, Danish industry and government officials cautioned that the association between antibiotic use and resistance is not straightforward. For example, despite restrictions on veterinary use of the critically important fluoroquinolone antibiotics since 2002, Danish resistance data have not shown a decrease in fluoroquinolone-resistant bacteria from food animals. Danish industry officials explained that restrictions on fluoroquinolone use in swine were implemented before fluoroquinolone resistance became pronounced in Denmark and that current rates of fluoroquinolone-resistant Salmonella in Danish pork are lower than for pork imported into Denmark. Danish officials told us that Denmark’s resistance data have not shown a decrease in antibiotic resistance in humans after implementation of the various Danish policies, except for a few limited examples. Specifically, officials said that the prevalence of vancomycin-resistant Enterococcus faecium from humans has decreased since avoparcin was banned for use in animals in 1995. Resistance has been tracked for other types of bacteria and antibiotics, but similar declines have not been seen. Danish government officials explained that, in addition to antibiotic use in food animals, there are other important contributors to antibiotic resistance in humans, including human antibiotic use, consumption of imported meat (which may contain more antibiotic-resistant bacteria than Danish meat), and acquisition of resistant bacteria while traveling. Danish officials told us their data collection systems are not designed to gather information about whether human deaths from antibiotic resistance have fallen after the implementation of risk management policies. Officials mentioned a challenge to this type of data collection is that “antibiotic resistance” is not listed on death certificates as the cause of death; generally, as in the United States, the cause of death would be listed as multiple organ failure, making it difficult to identify deaths caused by antibiotic-resistant infections. Denmark has also tracked the prevalence of bacteria that cause human foodborne illness on retail meat products, according to Danish industry officials. Producer organizations in the United States have expressed concerns that reductions in antibiotic use may lead to an increase in foodborne pathogens on meat, but industry officials in Denmark said that their data show no increase in the rates of these bacteria on meat products. These officials said, however, that several changes to management practices in slaughter plants may have helped ensure rates of foodborne pathogens on meat remained low. For example, these officials said Danish slaughter plants now use a flash-freezing technique—called blast chilling—that freezes the outer layer of an animal carcass, reducing the number of bacteria on the meat and even killing most Campylobacter. Danish producers and veterinary officials noted that the policies were easier for poultry producers to implement than for swine producers. Poultry producers had made changes to their production practices throughout the 1990s to eradicate Salmonella from their flocks, and these practices also helped maintain flock health without routine antibiotic use. In contrast, swine producers faced difficulties weaning piglets without antibiotics, reporting both an increase in mortality and a reduction in daily weight gain shortly after the ban. However, Danish industry officials explained that swine producers implemented multiple changes to production practices that enabled them to comply with the ban. These production practices included improved genetic selection, later weaning, improved diet, increased space per piglet, and improved flooring. Industry officials explained that such changes in production practices did have real costs to the industry. For example, weaning piglets later increases the time between litters and reduces the overall number of piglets produced annually. Despite these additional costs, however, Danish industry officials expressed pride in their ability to produce high-quality meat products while ensuring that they do not contribute unduly to the problem of antibiotic resistance. EU officials told us that they rely on member states to collect data on antibiotic use. As of September 2010, 10 countries in Europe collected data on sales of antibiotics used in food animals, and 5 of these countries collected species-specific data. In addition, 12 other countries have recently started or planned to begin collecting antibiotic sales data. Among countries that currently collect use data, these data are collected using different methods, which complicates comparing them across countries. EU officials identified several challenges to collecting information about antibiotic use throughout the EU. Specifically, identifying sources of detailed information about antibiotic use is difficult because EU countries have different distribution systems for veterinary medicines and therefore collect this information in varying ways. For example, in Denmark, such data are collected from veterinary pharmacies, but not all EU countries require animal antibiotics to be dispensed through pharmacies. In addition, EU countries vary in the extent to which veterinary prescriptions are monitored electronically, making it difficult to track prescriptions consistently throughout the EU. Despite these challenges, EU officials emphasized the importance of gathering data on antibiotic use in food animals for two reasons. First, they noted that tracking antibiotic use data allows governments to evaluate the effects of their risk management policies. Second, they mentioned that data on both antibiotic use and antibiotic resistance are needed in order to fully understand how use in animals is related to resistance in humans. Given the importance of collecting data, the EU has begun a pilot project to collect comparable antibiotic use data throughout the EU. The first phase will use a standard instrument to collect, harmonize, and analyze data on sales of veterinary antibiotics from countries that agree to participate. EU officials said that a report on sales of veterinary medicines, covering nine European countries, will be available in September 2011. EU officials said that subsequent phases will include more detailed data about species and purpose of use. They emphasized the importance of going beyond bulk sales data, noting that it is necessary to report antibiotic use in the context of the number of animals being treated or the pounds of meat produced, since it can allow for comparisons between EU countries as well as comparisons to human antibiotic use. EU officials said that the Danish system uses this type of data collection, and that WHO is working on developing guidance for how to create such data collection systems. For resistance data, EU officials told us that the EU has been collecting information from numerous member countries and working to improve the comparability of the data between countries. In 2006, the EU produced its first report for data gathered in 2004, collating information from 26 individual countries. However, EU officials said that resistance data cannot currently be compared across countries or aggregated to provide conclusions about the entire EU, though officials are in the process of developing a report that will provide EU-wide information. Instead, officials pointed to trends identified in particular member countries. For example, officials noted a decrease in resistance in Enterococcus from broiler chickens after avoparcin was banned for growth promotion uses in Germany, the Netherlands, and Italy. Officials also mentioned similar declines in resistance among Enterococcus from healthy humans in Germany and the Netherlands. Moreover, in addition to their data collection efforts on antibiotic use in food animals and antibiotic resistance in humans, meat, and food animals, the EU also conducts periodic baseline surveys to determine the prevalence of particular drug-resistant bacteria throughout all countries in the EU. EU officials said these baseline studies provide information that is comparable across countries. EU officials explained that EU countries are required to participate in these studies, which usually last 1 year and are used to set reduction targets for regulatory programs or to develop risk management measures. For example, in 2008 the EU conducted a prevalence study of MRSA in swine herds. It determined that the prevalence varied dramatically between member countries—it was found in more than 50 percent of swine herds in Spain, but in eight other EU countries there were no detections. According to Danish government and industry officials we interviewed, the Danish government does not conduct research on alternatives to antibiotic use. Both industry and government officials agreed that it should be government’s role to set regulatory policy and industry’s role to conduct research on how to meet regulatory goals. The Danish Agriculture and Food Council—an industry organization representing producers of a variety of meat and agricultural products—has funded several studies examining alternatives to growth promotion antibiotics. For example, one such study examined the economics of five types of products that had the potential to improve feed efficiency in swine without leading to antibiotic resistance and found that few products were both economical for farmers and successful in improving feed efficiency. EU officials also reported that at the EU-level government does not conduct a significant amount of research related to alternatives to antibiotics. They noted, however, that the EU has been trying to incentivize private industry to develop alternatives in other ways. For example, EU officials have tried to spur pharmaceutical companies to develop products to improve feed efficiency and growth by lengthening patents on such products. EU officials said that this results in a reduction in competition from generic manufacturers and has led to more than 300 applications for new feed additive products. Antibiotic resistance is a growing public health problem worldwide, and any use of antibiotics—in humans or animals—can lead to the development of resistance. In 2001, USDA and HHS agencies took steps to coordinate their actions on surveillance, prevention and control of resistance, research, and product development through the 2001 interagency plan. The surveillance focus area of this plan includes action items related to improving efforts to monitor both antibiotic use in food animals, as well as antibiotic resistance in food animals and in retail meat. According to WHO, populations sampled for surveillance purposes should normally be representative of the total population—in this case, food animals and retail meat in the United States. Since 2001, however, USDA and HHS agencies have made limited progress in improving data collection on antibiotic use and resistance. For example, although FDA has a new effort to collect data on antibiotics sold for use in food animals, these data lack crucial details, such as the species in which the antibiotics are used and the purpose for their use. The 2001 interagency plan states such data are essential for interpreting trends and variations in rates of resistance, improving the understanding of the relationship between antibiotic use and resistance, and identifying interventions to prevent and control resistance. In addition, two USDA agencies collect data on antibiotic use from food animal producers, but data from these surveys provide only a snapshot of antibiotic use practices and cannot be used to examine trends. Collecting data on antibiotic use in food animals can be challenging and costly, but without an approach to collecting more detailed data, USDA and HHS cannot track the effectiveness of policies they undertake to curb resistance. Indeed, FDA currently does not have a plan to measure the effectiveness of its voluntary strategy to reduce food animal use of antibiotics that are medically important to humans. Although there are challenges to collecting detailed data on antibiotic use, efforts are under way in the EU to begin collecting such data. For data on antibiotic resistance, HHS and USDA agencies have leveraged existing programs to collect samples of bacteria, but the resulting data are not representative of antibiotic resistance in food animals and retail meat throughout the United States. According to the 2001 interagency plan, antibiotic resistance data will allow agencies to detect resistance trends and improve their understanding of the relationship between use and resistance. FDA is aware of the NARMS sampling limitations and has included a strategic goal of making NARMS sampling more representative and applicable to trend analysis in its draft 2011-2015 NARMS Strategic Plan. FDA officials mentioned several ways that NARMS sampling could be improved, such as discontinuing slaughter plant sampling in favor of an on-farm sampling program and increasing the number of states participating in the retail meat program. USDA and HHS have also undertaken some research related to developing alternatives to current antibiotic use practices. However, the extent of these research efforts is unclear, as neither USDA nor HHS has assessed its research efforts to determine the progress made toward the related action item in the 2001 interagency plan. In addition, officials from most of the veterinary and several public health organizations we spoke with said that the federal government should make greater efforts to coordinate this research with the food animal industry. Without an assessment of past research efforts and coordination with industry, USDA and HHS may be limited in their ability to identify gaps where additional research is needed. In addition, USDA and HHS managers may not have the critical information they need to make decisions about future research efforts. Focus on tracking progress and making sound decisions about future research is particularly important in light of the fiscal pressures currently facing the federal government. Nevertheless, the draft 2010 interagency plan includes an action item on researching alternatives, but it does not identify steps the agencies intend to take to do so. Similarly, USDA and HHS had sought to educate producers and veterinarians about appropriate antibiotic use but did not assess their efforts. The one remaining education activity, however, is a $70,400 USDA training module on antibiotic resistance for veterinarians, which will be completed in 2012, after which there are no plans to develop new education activities. We are making the following three recommendations:  To track the effectiveness of policies to curb antibiotic resistance, including FDA’s voluntary strategy designed to reduce antibiotic use in food animals and to address action items in the surveillance focus area of the 2001 interagency plan, we recommend the Secretaries of Agriculture and Health and Human Services direct agencies to, consistent with their existing authorities, (1) identify potential approaches for collecting detailed data on antibiotic use in food animals, including the species in which antibiotics are used and the purpose for their use, as well as the costs, time frames, and potential trade-offs associated with each approach; (2) collaborate with industry to select the best approach; (3) seek any resources necessary to implement the approach; and (4) use the data to assess the effectiveness of policies to curb antibiotic resistance.  To enhance surveillance of antibiotic-resistant bacteria in food animals, we recommend that the Secretaries of Agriculture and Health and Human Services direct agencies to, consistent with their existing authorities, modify NARMS sampling to make the data more representative of antibiotic resistance in food animals and retail meat throughout the United States.  To better focus future federal research efforts on alternatives to current antibiotic use practices, we recommend that the Secretaries of Agriculture and Health and Human Services direct agencies to (1) assess previous research efforts on alternatives and identify gaps where additional research is needed, in collaboration with the animal production industry, and (2) specify steps in the draft 2010 interagency plan that agencies will take to fill those gaps. We provided the Departments of Agriculture and Health and Human Services a draft of this report for review and comment. Both departments agreed with our recommendations and provided written comments on the draft, which are summarized below and appear in their entirety in appendixes VII and VIII, respectively, of this report. The departments also provided technical comments, which we incorporated as appropriate. In its comments, USDA agreed with our recommendations. In response to our recommendation on collecting antibiotic use data, USDA noted that the department has devised strategies to collect detailed information on antibiotic use in food animals, as documented in “A USDA Plan to Address Antimicrobial Resistance.” Our report discusses many of the ongoing USDA activities described in the document, including NAHMS, ARMS, and NARMS. In commenting on our recommendation to collect more representative resistance data, USDA acknowledged that sampling for antibiotic resistant bacteria in food animals is not currently conducted on a nationally representative population, but also stated that NARMS data can still be used to examine general trends. We continue to believe that the nonrandom sampling method used for food animals in NARMS results in data that are not representative of food animals across the country and cannot be used for trend analysis. Moreover, as our report states, the NARMS program has prioritized modifying animal sampling to overcome its current biases, and both FDA and USDA have identified efforts that could be used to improve NARMS food animal sampling. In its letter, USDA identified several such efforts; we had included several of these in the draft report, and we modified the final version to include the remaining effort. In its comments, HHS also agreed with our recommendations, but stated that FDA has made substantial progress and taken an active and deliberative role in addressing the controversial and complex issue of antibiotic use in food animals. We acknowledge that FDA has taken many actions, most of which are discussed in the report. However, as our report states, since the 2001 interagency plan, USDA and HHS agencies have made limited progress in improving data collection on antibiotic use and resistance. Specifically, as we noted in our report, FDA’s data on sales of antibiotics for animal use do not include information on the species in which antibiotics are used or the purpose for their use, which, for example, prevents agencies from interpreting trends and variations in rates of resistance. Similarly, as our report states, data on antibiotic resistance from food animals are not representative and cannot be used for trend analysis—even though the 2001 interagency plan identified detecting resistance trends as an important part of monitoring for antibiotic resistance. In commenting on our recommendation regarding antibiotic use data collection, FDA recognized that having more detailed antibiotic use data would benefit its overall effort to assure the judicious use of antibiotics. FDA also noted that it is exploring potential approaches for obtaining more detailed information and that it plans to coordinate with USDA in that effort. We modified our report to include this information. In addition, regarding our findings on FDA’s resistance data from retail meat, FDA stated that it does not believe samples need to be statistically representative of the entire United States to serve as indicators of U.S. retail meat. We modified our report to better reflect FDA’s position, but as our report states, the FDA Science Advisory Board’s 2007 review of data on antibiotic resistance in retail meat found that the lack of a national sampling strategy limits a broader interpretation of NARMS data. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, Secretaries of Agriculture and Health and Human Services, and other interested parties. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IX. The objectives of our review were to determine (1) the extent to which federal agencies have collected data on antibiotic use and resistance in food animals; (2) the actions the Food and Drug Administration (FDA) has taken to mitigate the risk of antibiotic resistance in humans as a result of antibiotic use in food animals; (3) the extent to which federal agencies have conducted research on alternatives to current antibiotic use practices and educated producers and veterinarians about appropriate antibiotic use; and (4) what actions the European Union (EU) and an EU member country, Denmark, have taken to regulate antibiotic use in food animals and what lessons, if any, have been learned. To address the first three objectives of our study, we reviewed federal laws, regulations, policies, and guidance; federal plans about antibiotic resistance; agency documents related to data collection efforts on antibiotic use and resistance; and documents from international organizations and other countries related to surveillance of animal antibiotic use and resistance. In particular, we reviewed the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill), as well as laws related to FDA’s oversight of animal antibiotics, including the Federal Food, Drug, and Cosmetic Act, the Animal Drug Availability Act of 1996, the Animal Drug User Fee Act of 2003. We also reviewed regulations and guidance implementing FDA’s authorities, including Evaluating the Safety of Antimicrobial New Animal Drugs with Regard to Their Microbiological Effects on Bacteria of Human Health Concern (Guidance for Industry #152), and The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals (draft Guidance for Industry #209). In addition, we reviewed the 2001 Interagency Public Health Action Plan to Combat Antimicrobial Resistance, the draft 2010 Interagency Public Health Action Plan to Combat Antimicrobial Resistance, and agencies’ annual updates of activities they completed related to these plans. We also reviewed agency documents related to FDA’s sales data, the National Animal Health Monitoring System (NAHMS), the Agricultural Resource Management Survey (ARMS), the National Antimicrobial Resistance Monitoring System (NARMS), and the now-defunct pilot Collaboration on Animal Health and Food Safety Epidemiology (CAHFSE). Internationally, we reviewed documents from surveillance systems in Canada and Denmark, including reports about the Canadian Integrated Program on Antimicrobial Resistance Surveillance (CIPARS) and the Danish Antimicrobial Resistance Monitoring and Research Programme (DANMAP). In addition, we reviewed the World Health Organization’s guidance on developing surveillance systems for antibiotic resistance related to food animal antibiotic use. To discuss topics related to the first three objectives, we also conducted interviews with officials at the Department of Health and Human Services’ (HHS) Centers for Disease Control and Prevention (CDC), FDA, and the National Institutes of Health (NIH) and U.S. Department of Agriculture (USDA) agency officials at the Animal and Plant Health Inspection Service (APHIS), the Agricultural Research Service (ARS), the Economic Research Service (ERS), the Food Safety and Inspection Service (FSIS), and the National Institute of Food and Agriculture (NIFA). We also interviewed an official representing CIPARS to discuss the program’s efforts to monitor antibiotic use and resistance in animals across Canada, the challenges it faces, and how the program may relate to current and future data collection efforts in the United States. We also conducted site visits with conventional and alternative (either organic or antibiotic-free) producers of poultry, cattle, swine, and dairy products in Delaware, Georgia, Iowa, Kansas, Minnesota, and Wisconsin to obtain a better understanding of production practices and the types of antibiotic use data available at the farm level. During these site visits, we spoke with producers, veterinarians, academic researchers, and extension agents involved with food animal production. We selected these commodity groups because they represent the top four animal products in the United States. We selected our site visit locations based on the accessibility of production facilities of different sizes—we visited both small and large facilities; including states that are among the largest producers of each commodity in our scope of study; and proximity to Washington, D.C., and the USDA NARMS laboratory in Georgia. These sites were selected using a nonprobability sample and the findings from those visits cannot be generalized to other producers. Based on issues identified by reviewing documents and interviewing federal, state, and local officials, we developed a questionnaire on the use of antibiotics in animals and resistance. The questionnaire gathered organizations’ perspectives on a range of topics including the extent to which federal data collection programs support the action items identified by federal agencies in the 2001 interagency plan; what actions, if any, FDA or other federal agencies should take to implement the two principles FDA outlined in draft Guidance for Industry #209 and how such implementation may affect antibiotic use in food animals; and what role, if any, the federal government should have in conducting research on alternatives to current antibiotic use practices and educating producers and veterinarians. We conducted a pretest of the questionnaire and made appropriate changes based on the pretest. In addition to developing the questionnaire, we identified 11 organizations involved with the issue of antibiotic use in food animals and antibiotic resistance. We selected these organizations because of their expertise in topics surrounding antibiotic use in animals and resistance based on whether they have been actively involved in this issue within the past 5 years, including through testimonies to Congress, in-depth public discussions, or published research; and to provide representation across producer organizations that represent the major commodities, in addition to pharmaceutical and public health organizations. The selected organizations are a nonprobability sample, and their responses are not generalizable. The selected organizations were: National Cattleman’s Beef Association, National Milk Producers’ Federation, National Pork Producers Council, National Chicken Council, Animal Health Institute, Alliance for the Prudent Use of Antibiotics, Center for Science in the Public Interest, Infectious Diseases Society of America, Keep Antibiotics Working, PEW Campaign on Human Health and Industrial Farming, and Union of Concerned Scientists. We administered the questionnaires through structured interviews with representatives from the 11 national organizations, who spoke on behalf of their members, either via phone or in-person. All 11 organizations agreed to participate in these structured interviews. To identify trends in responses, we qualitatively analyzed the open-ended responses from the interviews to provide insight into organizations’ views on the issues identified in the questionnaire. We also conducted structured interviews with representatives from five national veterinary organizations, who spoke on behalf of their members, to discuss their views on federal research efforts on alternatives and federal efforts to educate producers and veterinarians about appropriate use. The questionnaire covered a range of topics including federal progress in both of these areas since 2001 and actions the federal government can take to improve future efforts in these areas. We contacted five veterinary organizations to request their participation, selecting these organizations to include the largest U.S. veterinary organization—the American Veterinary Medical Association—as well as a veterinary organization representing each of the major commodities in our review—American Association of Avian Pathologists, American Association of Bovine Practitioners, American Association of Swine Veterinarians, and the Academy of Veterinary Consultants. We distributed the questionnaire to the five organizations electronically and administered the questionnaires through structured interviews with each organization via phone or in person. All five veterinary organizations agreed to participate in these structured interviews. To identify trends in responses, we qualitatively analyzed the open-ended responses from the interviews to provide insight into organizations’ views on the issues identified in the questionnaire. Although we sought to include a variety of organizations with perspectives about antibiotic use and resistance, the views of organizations consulted should not be considered to represent all perspectives about these issues and are not generalizable. To describe actions the EU and Denmark have taken to regulate antibiotic use in food animals and potential lessons that have been learned from these actions, we reviewed documents, spoke with EU and Danish government and industry officials, and visited producers. We selected the EU and Denmark because they implemented bans on growth promotion uses of antibiotics in 2006 and 2000, respectively, which allows for a review of the effects of these policies in the years since. In addition, Denmark’s experience with regulating antibiotic use has been well- documented in government-collected data that provide insight into the effects of policy changes. For the EU, we reviewed documents describing EU Commission directives and regulations regarding antibiotic use in food animals, risk assessments related to antibiotic use in food animals, surveillance reports describing antibiotic resistance in the EU, and proposals for future data collection efforts on antibiotic use. In addition, we spoke with officials from the EU Directorates General for Health and Consumers, Agriculture and Rural Development, and Research and Innovation. We also spoke with an official from the European Food Safety Agency regarding their surveillance reports describing antibiotic resistance in the EU. Finally, we interviewed the following organizations that interact with the EU on behalf of their members regarding animal antibiotic use: Federation of Veterinarians of Europe, which represents veterinarians throughout the EU, and the International Federation for Animal Health, which represents pharmaceutical companies who manufacture animal health products. We did not independently verify statements of EU law. For Denmark, we reviewed documents describing Danish laws and regulations regarding animal antibiotic use and government regulation of veterinarians, surveillance reports describing antibiotic use and antibiotic resistance in Denmark, and published studies examining Denmark’s experience with regulating antibiotic use. In addition, we spoke with officials at the Danish Veterinary and Food Administration and DANMAP. We also spoke with officials at the Danish Agriculture and Food Council, which represents producers in Denmark, to learn about how Danish policies have affected producers. Finally, we conducted site visits and interviewed Danish producers and veterinarians at a poultry and a swine facility in Denmark to learn about current methods of production and how these producers have implemented Danish policies. These sites were selected based on convenience and the findings from those visits cannot be generalized to other producers. We did not independently verify statements of Danish law. We conducted this performance audit from August 2010 to September 2011, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Some producers raise animals using alternative modes of production. One such alternative is organic production, for which USDA’s National Organic Program (NOP) develops, implements, and administers national standards. To comply with NOP standards, organically produced animals cannot be treated with antibiotics. According to USDA, organic farming has become one of the fastest-growing segments of U.S. agriculture, and consumer demand for organically produced goods has shown double- digit growth for well over a decade, providing market incentives for U.S. farmers across a broad range of commodities. According to recent industry statistics, organic sales account for over 3 percent of total U.S. food sales. Fruits and vegetables account for about 37 percent of U.S. organic food sales, while dairy and food animals (including meat, fish, and poultry) account for about 16 and 3 percent, respectively, of U.S. organic food sales. According to the Organic Trade Association, transitioning from conventional to organic production can take several years, because producers must adopt certain management practices to qualify for organic certification. The NOP standards apply to animals used for meat, milk, eggs, and other animal products represented as organically produced. Some of the NOP livestock standards include the following:  Animals for slaughter must be raised under organic management from the last third of gestation, or no later than the second day of life for poultry.  Producers generally must provide a total feed ration composed of agricultural products, but they may also provide allowed vitamin and mineral supplements.  Traditional livestock have transition periods for converting to organic. For example, producers may convert an entire distinct dairy herd to organic production by providing 80 percent organically produced feed for 9 months, followed by 3 months of 100 percent organically produced feed. If the farm did not convert an entire distinct herd, new animals added must be raised using organic methods for at least 1 year before the milk can be sold as organic.  Organically raised animals may not be given hormones to promote growth, or antibiotics for any reason.  All organically raised animals must have access to the outdoors, including access to pasture for ruminants, such as cattle. They may be temporarily confined only for specified reasons, including reasons of health, safety, the animal’s stage of production, or to protect soil or water quality.  A USDA-approved certifier ensures that organic producers are following all of the rules necessary to meet NOP standards, which includes maintaining data that preserve the identity of all organically managed animals and edible and nonedible animal products produced on the operation. One producer we visited told us that his farm began the transition from a conventional farm in 1995 and became a grass-fed beef and certified organic farm in 2006 (see fig. 4). This producer also said that the transition experience was economically challenging. Specifically, during this conversion the farm stopped bringing in outside animals and changed confinement and feed practices. Through such changes, this producer said that, overall, the animals are healthier and the farm has increased marketing opportunities, which he feels outweighs the costs. In addition to organic, there are other alternative modes of production. For example, FSIS has a “raised without antibiotics” production label for red meat and poultry. Before FSIS will approve such a label, producers must provide the agency with sufficient documentation that demonstrates animals were raised without antibiotics. Other commonly approved FSIS poultry and meat production labels include “natural” and “free range,” though these labels do not limit the use of antibiotics (see fig. 5). Some conventional and alternative producers we visited told us that animals produced without antibiotics typically grow at slower rates and tend to weigh less at market, requiring producers to charge higher premiums to cover these additional production costs. Producers raising animals without antibiotics typically have to take greater preventative measures, such as changes in husbandry practices, in order to reduce chances of illness. These changes in husbandry practices may include providing hay bedding for newly birthed calves and mother cows, selecting and breeding animals with disease resistance, and allowing greater access outdoors and space per animal. When animals do become sick, alternative disease treatments depend on the animal and illness. For example, cows may be treated with sea salt and a patch for pink eye and splints for broken legs. Still, antibiotics may need to be used as a last resort and, in such cases, these animals are sold to the conventional market, creating an economic loss for the producer. Tables 7 and 8 provide examples of the data collected by the Food and Drug Administration as required by the Animal Drug User Fee Amendments of 2008 (ADUFA). The objectives of the Danish Integrated Antimicrobial Resistance Monitoring and Research Program (DANMAP) are to monitor the consumption of antibiotics for food animals and humans; monitor the occurrence of antibiotic resistance in bacteria from food animals, food of animal origin, and humans; study associations between antibiotic use and resistance; and identify routes of transmission and areas for further research studies. Table 9 shows the types of data gathered about antibiotic use and resistance in Denmark and the sources of these data. Grantee(s) (if applicable) Project year(s) Grantee(s) (if applicable) Project year(s) Grantee(s) (if applicable) Project year(s) Researching methods and strategies to reduce antibiotic resistance transmission along the food chain This figure is based on fiscal year 2010 funding levels, and is similar to funding for each year of the project. In 2010, NIFA was allocated up to $4 million to award two competitive grants related to antibiotic resistance and use (awarded to Kansas State University and Washington State University). NIFA expects to make decisions about similar grants for fiscal year 2011 in September, and to release award announcements in fiscal year 2012. In addition to the individual named above, Mary Denigan-Macauley, Assistant Director; Kevin Bray; Antoine Clark; Julia Coulter; Cindy Gilbert; Janice Poling; Katherine Raheb; Leigh Ann Sennette; Ben Shouse; and Ashley Vaughan made key contributions to this report. Antibiotic Resistance: Data Gaps Will Remain Despite HHS Taking Steps to Improve Monitoring. GAO-11-406. Washington, D.C.: June 1, 2011. Federal Food Safety Oversight: Food Safety Working Group Is a Positive First Step but Governmentwide Planning Is Needed to Address Fragmentation. GAO-11-289. Washington, D.C.: March 18, 2011. High Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Veterinarian Workforce: Actions are Needed to Ensure Sufficient Capacity for Protecting Public and Animal Health. GAO-09-178. Washington, D.C.: February 4, 2009. Food Safety: Selected Countries’ Systems Can Offer Insights into Ensuring Import Safety and Responding to Foodborne Illness. GAO-08-794. Washington, D.C.: June 10, 2008. Avian Influenza: USDA Has Taken Steps to Prepare for Outbreaks, but Better Planning Could Improve Response. GAO-07-652. Washington, D.C.: June 11, 2007. Antibiotic Resistance: Federal Agencies Need to Better Focus Efforts to Address Risk to Humans from Antibiotic Use in Animals. GAO-04-490. Washington, D.C.: April 22, 2004. Food Safety: The Agricultural Use of Antibiotics and Its Implications for Human Health. GAO/RCED-99-74. Washington, D.C.: April 28, 1999. Executive Guide: Effectively Implementing the Government Performance and Results Act. GAO/GGD-96-118. Washington, D.C.: June 1996.","Antibiotics have saved millions of lives, but antibiotic use in food animals contributes to the emergence of resistant bacteria that may affect humans. The Departments of Health and Human Services (HHS) and Agriculture (USDA) are primarily responsible for ensuring food safety. GAO reviewed the issue in 2004 and recommended improved data collection and risk assessment. GAO was asked to examine the (1) extent to which agencies have collected data on antibiotic use and resistance in animals, (2) actions HHS's Food and Drug Administration (FDA) took to mitigate the risk of antibiotic resistance in humans as a result of use in animals, (3) extent to which agencies have researched alternatives to current use practices and educated producers and veterinarians about appropriate use, and (4) actions the European Union (EU) and an EU member country, Denmark, have taken to regulate use in animals and lessons that have been learned. GAO analyzed documents, interviewed officials from national organizations, and visited producers in five states and Denmark.. HHS and USDA have collected some data on antibiotic use in food animals and on resistant bacteria in animals and retail meat. However, these data lack crucial details necessary to examine trends and understand the relationship between use and resistance. For example, since GAO's 2004 report, FDA began collecting data from drug companies on antibiotics sold for use in food animals, but the data do not show what species antibiotics are used in or the purpose of their use, such as for treating disease or improving animals' growth rates. Also, although USDA agencies continue to collect use data through existing surveys of producers, data from these surveys provide only a snapshot of antibiotic use practices. In addition, agencies' data on resistance are not representative of food animals and retail meat across the nation and, in some cases, because of a change in sampling method, have become less representative since GAO's 2004 report. Without detailed use data and representative resistance data, agencies cannot examine trends and understand the relationship between use and resistance. FDA implemented a process to mitigate the risk of new animal antibiotics leading to resistance in humans, which involves the assessment of factors such as the probability that antibiotic use in food animals would give rise to resistant bacteria in the animals, but it faces challenges mitigating risk from antibiotics approved before FDA issued guidance in 2003. FDA officials told GAO that conducting postapproval risk assessments for each of the antibiotics approved prior to 2003 would be prohibitively resource intensive, and that pursuing this approach could further delay progress. Instead, FDA proposed a voluntary strategy in 2010 that involves FDA working with drug companies to limit approved uses of antibiotics and increasing veterinary supervision of use. However, FDA does not collect the antibiotic use data, including the purpose of use, needed to measure the strategy's effectiveness. HHS and USDA have taken some steps to research alternatives to current antibiotic use practices and educate producers and veterinarians on appropriate use of antibiotics. However, the extent of these efforts is unclear because the agencies have not assessed their effectiveness. Without an assessment of past efforts, the agencies may be limited in their ability to identify gaps where additional research is needed. Except for one $70,400 USDA project, all other federal education programs have ended. Since 1995, the EU, including Denmark, banned the use of antibiotics to promote growth in animals, among other actions. Some of their experiences may offer lessons for the United States. For example, in Denmark, antibiotic use in animals initially decreased following a series of policy changes. The prevalence of resistant bacteria declined in food animals and retail meat in many instances, but a decline in humans has only occasionally been documented. Denmark's data on use and resistance helped officials track the effects of its policies and take action to reverse unwanted trends. The EU faces difficulty collecting data that can be compared across countries, but officials there said such data are needed to fully understand how use in animals may lead to resistance in humans. GAO recommends that HHS and USDA (1) identify and evaluate approaches to collecting detailed data on antibiotic use in animals and use these data to evaluate FDA's voluntary strategy, (2) collect more representative data on resistance, and (3) assess previous efforts on alternatives to identify where more research is needed. HHS and USDA agreed with GAO's recommendations."
"Continuing a legislative effort that began in the 107th Congress, House and Senate confereeson November 17, 2003, reached agreement on an omnibus energy bill ( H.R. 6 , H.Rept.108-375 ), which would be the first comprehensive energy legislation in more than 10 years. OnNovember 18, the House approved the conference report by a vote of 246-180, but on November 21,a cloture motion to limit debate in the Senate failed, 57-40. On February 12, 2004, SenatorDomenici introduced a revised version of the bill ( S. 2095 ) with a lower estimated costand without a controversial provision on the fuel additive MTBE. Including tax provisions, S. 2095 is estimated by its supporters to cost less than $14 billion, in contrast to the $31billion estimated for the H.R. 6 conference report. The two bills contain identical provisions to change the regulatory requirements for thewholesale electric market, including repeal of the Public Utility Holding Company Act (PUHCA). They would also mandate increasing levels of ethanol production through 2012 but allow regionsto opt out under certain conditions. Use of methyl tertiary butyl ether (MTBE) as a domesticgasoline additive would be banned by the end of 2014, but the President could void the ban and astate could authorize continued use. Under the H.R. 6 conference report, producers ofMTBE and renewable fuels would be granted protection (a ""safe harbor"") from product liabilitylawsuits, but that provision was dropped in S. 2095 . Both bills would provide $18 billion in loan guarantees for construction of a natural gaspipeline from Alaska to Alberta, where it would connect to the existing Midwestern pipeline system. Royalty reductions would be provided for marginal oil and gas wells on federal lands and the outercontinental shelf. Provisions are also included to increase access by energy projects to federal lands. Several new statutory efficiency standards would be established for consumer andcommercial products and appliances, and other standards could be set by the Department of Energy(DOE). For motor vehicles, funding would be authorized for the National Highway Traffic SafetyAdministration (NHTSA) to set Corporate Average Fuel Economy (CAFE) levels as provided incurrent law. The House version of H.R. 6 , which passed April 11, 2003, included a keycomponent of the Bush Administration's energy strategy: opening the Arctic National WildlifeRefuge (ANWR) to oil and gas exploration and development. But the Senate version, passed July31, 2003, did not include the ANWR language, and the conference report and S. 2095 would leave ANWR off-limits to drilling. This report summarizes the major non-tax provisions of the H.R. 6 conferenceagreement and notes the changes included in S. 2095 . Table 1 lists annual fundingauthorizations in the bills, which total about $71 billion over 10 years. (The likely cost of thefunding authorizations has not yet been estimated by the Congressional Budget Office.) For adiscussion of the tax provisions in the bills, see CRS Issue Brief IB10054, Energy Tax Policy . For a comparison of the House and Senate versions of H.R. 6 , see CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-side Comparison of Non-taxProvisions . Many provisions in the H.R. 6 conference report are similar to those of anomnibus energy bill that the Senate debated but did not pass, S. 14 . For a comparisonof major provisions of S. 14 and the House and Senate versions of H.R. 6, seeCRS Report RL32078, Omnibus Energy Legislation: Comparison of Major Provisions in House-and Senate-Passed Versions of H.R. 6, Plus S. 14. Electricity Regulation. Historically, electric utilities have been regarded as naturalmonopolies requiring regulation at the state and federal levels. The Energy Policy Act of 1992(EPACT, P.L. 102-486 ) removed a number of regulatory barriers to electricity generation in an effortto increase supply and introduce competition, but further legislation has been introduced and debatedto resolve remaining issues affecting transmission, reliability, and other restructuring concerns. In part, the electricity section of the conference report and S. 2095 would repealthe Public Utility Holding Company Act (PUHCA) and establish mandatory reliability standards.Standard market design (SMD), a proposed system to provide uniform market procedures forwholesale electric power transactions, would be remanded to the Federal Energy RegulatoryCommission (FERC); no rule would be allowed before the end of FY2006. The Department ofEnergy (DOE) would identify ""transmission corridors"" that require new construction or upgrading.The bills would grant eminent domain authority to the federal government for construction ofinterstate power lines on these transmission corridors if the states did not act in time. (For a discussion of the policy context and current law, see CRS Report RL32178 , Summaryof Electricity Provision in the Conference Report on H.R. 6. For additional discussionon these issues, see CRS Report RL32728 , Electric Utility Regulatory Reform: Issues for the 109thCongress ; and CRS Report RL32133 , Federal Merger Review Authority .) Renewable Fuel Standard and MTBE. The H.R. 6 conference report and S. 2095 would amend the Clean Air Act to eliminate the requirement that reformulatedgasoline (RFG) contain 2% oxygen to reduce automotive emissions, a requirement which promptedthe widespread use of MTBE (methyl tertiary butyl ether) and, to a lesser degree, ethanol. Instead,the bills would establish a new requirement that an increasing amount of gasoline contain renewablefuels such as ethanol. The bills would require that 3.1 billion gallons of renewable fuel be used in2005, increasing to 5.0 billion gallons by 2012 (as compared to 2.1 billion gallons used in 2002). However, concerns have been raised that this requirement could significantly raise the pump pricefor gasoline in some areas. Because of concerns over drinking water contamination by MTBE (a major competitor withethanol), the bills would ban the use of MTBE in motor vehicle fuel, except in states that specificallyauthorize its use, not later than December 31, 2014. The ban has two possible exceptions. First, EPAmay allow MTBE in motor fuel up to 0.5 percent by volume, in cases that the Administratordetermines to be appropriate; and second, the President may make a determination, not later thanJune 30, 2014, that the restrictions on the use of MTBE shall not take place. The bills would alsoauthorize $2.0 billion to assist the conversion of merchant MTBE production facilities to theproduction of other fuel additives. Further, the bills would preserve the reductions in emissions oftoxic substances achieved by the RFG program. One of the most controversial provisions in the H.R. 6 conference report is theestablishment of a ""safe harbor"" from product liability lawsuits for producers of MTBE andrenewable fuels. The safe harbor provision -- which was excluded from S. 2095 --would protect anyone in the product chain, from manufacturers down to retailers, from liability forcleanup of MTBE and renewable fuels or for personal injury or property damage based on the natureof the product. (That legal approach has been used in California to require refiners to shoulderliability for MTBE cleanup.) The safe harbor would be retroactive to September 5, 2003. Prior to thatdate, five lawsuits had been filed. After that date, at least 150 suits were filed, on behalf of 210communities in 15 different states. (For additional information, see CRS Report RL32865(pdf) , Renewable Fuels and MTBE: AComparison of Selected Legislative Initiatives ; CRS Report RL30369, Fuel Ethanol: Backgroundand Public Policy Issues ; and CRS Report RL32787 , MTBE in Gasoline: Clean Air and DrinkingWater Issues .) Motor Vehicle Fuel Economy. One of the first initiatives designed to have a significanteffect on oil demand was passage of corporate average fuel economy standards (CAFE) in theEnergy Policy and Conservation Act of 1975 (EPCA, P.L. 94-163 ). In the years since, there havebeen periodic calls for toughening or broadening the CAFE standards -- especially as consumerdemand has turned more to light-duty trucks and sport utility vehicles (SUVs). A final rule mandating higher CAFE standards for light-duty trucks was issued April 1, 2003,by the National Highway Traffic Safety Administration (NHTSA), but congressional interest in theissue continues. The bill reported from conference and S. 2095 would require a CAFEstudy, would prescribe several considerations that must be weighed in determining maximumfeasible fuel economy, would authorize $2 million annually during FY2004-FY2008 for NHTSArulemakings and CAFE analysis, and would extend the existing fuel economy credit for themanufacture of alternative-fueled vehicles. (For additional information, see CRS Issue Brief IB90122, Automobile and Light Truck FuelEconomy: The CAFE Standards .) Nuclear Accident Liability. Reauthorization of the Price-Anderson Act nuclear liabilitysystem is one of the top nuclear items on the energy agenda. Under Price-Anderson, commercialreactor accident damages are paid through a combination of private-sector insurance and a nuclearindustry self-insurance system. Liability is capped at the maximum coverage available under thesystem, currently about $10.9 billion. Price-Anderson also authorizes the Department of Energy toindemnify its nuclear contractors. The limit on DOE contractor liability is the same as forcommercial reactors, except when the limit for commercial reactors drops because of a decline inthe number of covered reactors. The H.R. 6 conference agreement and S. 2095 would provide a20-year extension of Price-Anderson to the end of 2023. The nuclear industry contends that thesystem has worked well and should be continued, but opponents charge that Price-Anderson'sliability limits provide an unwarranted subsidy to nuclear power. The conference report would alsoauthorize the Nuclear Regulatory Commission (NRC) to issue new regulations on nuclear powerplant security and would require force-on-force security exercises. Another nuclear provision in the bills is a $1.1 billion authorization for a nuclear-hydrogencogeneration project at the Idaho National Engineering and Environmental Laboratory. In the taxtitle, the conference agreement -- but not S. 2095 -- would provide a tax credit of 1.8cents per kilowatt-hour for electricity generated by new nuclear power plants, if the plants wereplaced in service by 2020 and did not exceed a total capacity of 6,000 megawatts. (For more information, see CRS Issue Brief IB88090, Nuclear Energy Policy .) Renewable Energy and Efficiency. The H.R. 6 conference report and S. 2095 would legislate new energy efficiency standards for several consumer andcommercial products and appliances. For certain other products and appliances, DOE would beempowered to set new standards. Also, the bills would provide increased funding authorizations forthe DOE weatherization program and establish a voluntary program to promote energy efficiencyin industry. However, neither bill includes one of the top priorities of environmental groups: a renewableportfolio standard (RPS), which would have required retail electricity suppliers to obtain a minimumpercentage of their power from a portfolio of new renewable energy resources. The Senate versionof H.R. 6 would have established an RPS starting at 1% in 2005, rising at a rate of about1.2% every two years, and leveling off at 10% in 2019. (For additional information, see CRS Issue Brief IB10020, Energy Efficiency: Budget, OilConservation and Electricity Conservation Issues , and CRS Issue Brief IB10041, RenewableEnergy: Tax Credit, Budget, and Electricity Production Issues .) Arctic National Wildlife Refuge. The congressional debate over whether to open the ArcticNational Wildlife Refuge (ANWR) to oil and gas leasing has continued for more than 30 years. H.R. 6 as passed by the House would have authorized oil and gas exploration,development, and production in ANWR, with a 2,000-acre limit on production and support facilities.The Senate-passed bill did not include ANWR provisions. The Administration strongly urged thatthe House ANWR language be included in the conference bill. However, once it became apparentthat there were insufficient votes in the Senate to pass an energy bill with ANWR provisions, themanagers decided to leave ANWR out of the final conference bill and S. 2095 . Proponents of exploring ANWR point to advances in exploration and drilling technology andmethods that have significantly reduced the extent of surface disturbance caused by oil and gasactivities. While opponents concede this may be so, they argue that the bill does not imposeadequate requirements in this regard, that surface disturbance represents only one of manyenvironmental impacts, and that considerable risk to the environment remains during all phases ofdevelopment. Some opponents, citing ANWR's pristine character, argue that its ecology and habitatshould not be disturbed under any circumstances. (For additional information, see CRS Issue Brief IB10136, Arctic National Wildlife Refuge(ANWR) , and CRS Report RL31115 , Legal Issues Related to Proposed Drilling for Oil and Gas inthe Arctic National Wildlife Refuge .) Domestic Energy Production. The Department of the Interior (DOI) has estimated thatroughly a quarter of oil resources and less than one-fifth of gas resources on Indian lands have beendeveloped. The H.R. 6 conference report and S. 2095 would allow Indiantribes to enter into business agreements with energy developers without obtaining prior approvalfrom the Department of the Interior, but only if DOI has already approved the tribe's regulationsgoverning such energy agreements. To encourage production on federal lands, royalty reductions would be provided for marginaloil and gas wells on public lands and the outer continental shelf. Provisions are also included toincrease access to federal lands by energy projects -- such as drilling activities, electric transmissionlines, and gas pipelines. Alaska Gas Pipeline. Alaska's North Slope currently holds 30 trillion cubic feet ofundeveloped proven natural gas reserves, about 18% of total U.S. reserves. The Alaska gas reserveshave not been developed due to the high cost of building and operating the transportationinfrastructure to reach distant markets. The H.R. 6 conference bill and S. 2095 would provide $18 billion in loan guarantees for constructing an Alaska gas pipeline. The taxsection of S. 2095 would also provide a tax credit for Alaska gas producers if prices fellbelow a certain level. Hydrogen Fuel Initiative. The H.R. 6 conference bill and S. 2095 would authorize $2.1 billion for FY2004-2008 for President Bush's hydrogen initiative and establisha goal of producing hydrogen vehicles by 2020. Critics of the Administration suggest that thehydrogen program is intended to forestall any attempts to significantly raise vehicle CAFE standards,and that it relieves the automotive industry of assuming more initiative in pursuing technologicalinnovations. On the other hand, some contend that it is appropriate for government to becomeinvolved in the development of technologies that could address national environmental and energygoals but are too risky to draw private-sector investment. (For additional information, see CRS Report RS21442 , Hydrogen and Fuel Cell R&D:FreedomCAR and the President's Hydrogen Fuel Initiative ; and CRS Report RL32196, A HydrogenEconomy and Fuel Cells: An Overview .) Several significant non-tax provisions in the H.R. 6 conference report are notfound in the House and Senate versions of the bill. The following is a partial list and briefdescription of such new provisions. Hydropower. Section 246: Corps of Engineers Hydropower Operation and MaintenanceFunding. The administrators of power marketing administrations could transfer receipts to the ArmyCorps of Engineers for operations and maintenance activities at facilities assigned to them. Thisprovision was not included in S. 2095 . Energy on Federal Lands. Section 316: Alaska Offshore Royalty Suspension. TheSecretary of the Interior could reduce or eliminate oil and gas royalty or net profit shares in planningareas of offshore Alaska. Section 317: Oil and Gas Leasing in the National Petroleum Reserve in Alaska. Thecompetitive leasing system for oil and gas in the National Petroleum Reserve in Alaska would bemodified, allowing the Secretary of the Interior to grant royalty reductions if they were found to bein the public interest. Section 329: Outer Continental Shelf Provisions. For applications to build deepwater ports,the Secretary of Transportation could use environmental impact statements or other studies preparedby other federal agencies instead of conducting separate studies. Section 352: Renewable Energy on Federal Lands. A five-year plan would be prepared toencourage renewable energy development. Section 356: Finger Lakes National Forest Withdrawal. All federal land within the boundaryof Finger Lakes National Forest in the state of New York would be withdrawn from entry,appropriation, or disposal under public land laws and disposition under all laws relating to oil andgas leasing. Section 358: Federal Coalbed Methane Regulation. States would be encouraged to reduceimpediments to coalbed methane development. Nuclear Energy. Section 634: Fernald Byproduct Material. DOE-managed material in theconcrete silos at the Fernald uranium processing facility would be considered byproduct material,which DOE would dispose of in an NRC- or state-regulated facility. Section 635: Safe Disposal of Greater-than-Class-C Radioactive Waste. DOE woulddesignate an office with the responsibility for developing a comprehensive plan for permanentdisposal of the most concentrated category of low-level radioactive waste. Section 637: Uranium Enrichment Facilities. The Nuclear Regulatory Commission (NRC)would be required to issue a final decision on a license to build and operate a uranium enrichmentfacility within two years after an application is submitted, and procedures for handling the facility'swaste would be established. Section 638: National Uranium Stockpile. The Secretary of Energy would be authorized tocreate a national low-enriched uranium stockpile. Section 662: Fingerprinting for Criminal Background Checks. The existing requirement thatindividuals be fingerprinted for criminal background checks before receiving unescorted access tonuclear power plants would be extended to individuals with unescorted access to any radioactivematerial or property that could pose a health or security threat. Section 668: NRC Homeland Security Costs. Except for the costs of background checks andsecurity inspections, NRC homeland security costs would not be recovered through fees on nuclearpower plants and other licensees. Section 928: Security of Reactor Designs. DOE's Office of Nuclear Energy, Science, andTechnology would be required to carry out a research and development (R&D) program ontechnology for increasing the safety and security of reactor designs. Section 929: Alternatives to Industrial Radioactive Sources. After studying the currentmanagement of industrial radioactive sources and developing a program plan, DOE would berequired to establish an R&D program on alternatives to large industrial radioactive sources. Energy Efficiency and Renewables. Section 703: Credits for Medium and Heavy-DutyDedicated Vehicles. Vehicle fleets operated by states and alternative fuel providers could claim extracredits for purchasing medium- and heavy-duty vehicles dedicated to running on alternative fuels. Section 915: Distributed Energy Technology Demonstration Program. DOE would beauthorized to provide financial assistance to consortia for demonstrations to accelerate the use ofdistributed energy technologies in highly energy-intensive commercial applications. Section 916: Reciprocating Power. DOE would be required to create a program for fuelsystem optimization and emissions reduction after-treatment technologies for industrial reciprocatingengines, including retrofits for natural gas or diesel engines. Section 920: Concentrating Solar Power Research and Development Program. DOE wouldbe required to conduct an R&D program on using concentrating solar power to produce hydrogen. Section 965: Western Hemisphere Energy Cooperation. DOE would be directed to conducta cooperative effort with other nations of the Western Hemisphere to assist in formulating economicand other policies that increase energy supply and energy efficiency. Electricity. Section 1222: Third-Party Finance. The Western Area Power Administration(WAPA) and the Southwestern Power Administration (SWPA) would be able to either continue todesign, develop, construct, operate, maintain, or own transmission facilities within their region orparticipate with other entities for the same purposes if specified criteria were met. Section 1227: Office of Electric Transmission and Distribution. Statutory authority wouldbe provided for the DOE Office of Electric Transmission and Distribution. Section 1275: Service Allocation. FERC would be required to review and authorize costallocations for non-power goods or administrative or management services provided by an associatecompany that was organized specifically for the purpose of providing such goods or services. Offshore Energy Revenue Sharing. Section 1412: Domestic Offshore EnergyReinvestment. A portion of the federal revenues from offshore energy activities would be given toaffected coastal states to fund specified activities. Tennessee Valley Authority. Sections 1431-1434: Changes to Board of Directors and StaffAppointments. The presidentially appointed TVA Board of Directors would be expanded from threeto nine, and the Board would hire a chief operating officer to take over day-to-day management. Environmental Regulation. Section 1443: Attainment Dates for Downwind OzoneNonattainment Areas. Clean Air Act deadlines would be extended for areas that have not attainedozone air quality standards if upwind areas ""significantly contribute"" to their nonattainment. Section 1445: Use of Granular Mine Tailings. The EPA Administrator would be directed toestablish criteria for the safe and environmentally protective use of lead and zinc mine tailings innortheastern Oklahoma for cement or concrete projects, and for federally funded highwayconstruction projects. Alternative and Reformulated Fuels. Section 1513: Cellulosic Biomass andWaste-Derived Ethanol Conversion Assistance. The conference report would allow the Secretaryof Energy to provide grants for the construction of ethanol plants. To qualify, the ethanol must beproduced from cellulosic biomass, municipal solid waste, agricultural waste, or agriculturalbyproducts. A total of $750 million would be authorized for FY2004 through FY2006. Neither theHouse nor the Senate version contained any similar provision. Section 1514: Blending of Compliant Reformulated Gasolines. This provision would allowreformulated gasoline (RFG) retailers to blend batches with and without ethanol as long as bothbatches were compliant with the Clean Air Act. In a given year, retailers would be permitted toblend batches over any two 10-day periods in the summer months. Currently, retailers must draintheir tanks before switching from ethanol-blended RFG to non-ethanol RFG (or vice versa). TheHouse and Senate versions contained no similar provision. The remainder of this report provides a section-by-section summary of the non-tax provisionsof the conference version of H.R. 6 . Sections that were excluded from S. 2095 are shown in italics, and new language is shown in boldface. The sections are listed in numerical order, with section numbers that have been changed in S. 2095 shown in parentheses. Some of the most controversial sections are discussedin greater detail, while multiple sections that deal with a single program have been combined. Funding authorizations, including changes made by S. 2095 , are shown in Table 1 atthe end of the report. The following analysts in the CRS Resources, Science, and Industry Division contributed tothis report: [author name scrubbed], electric utilities; [author name scrubbed], DOE management; [author name scrubbed], energy security; Carl Behrens, hydropower; [author name scrubbed], Federal Water Pollution Control Act; Lynne Corn, ANWR; [author name scrubbed], Native American energy, generalauthorizations; [author name scrubbed], nuclear energy; [author name scrubbed], federal energy leasing, coal; Larry Kumins, oil and gas; Erika Lunder, state energy incentive authority; Jim McCarthy, Clean Air Act, MTBE; Dan Morgan, science programs; [author name scrubbed], Clean Air Act; [author name scrubbed], hydropower; [author name scrubbed], ozone, mine tailings; [author name scrubbed], conservation and renewable energy; [author name scrubbed], underground storage tanks, drinkingwater; Brent Yacobucci, motor fuels; Jeff Zinn, Coastal Zone Management Act. Section 101: Energy and Water Saving Measures in Congressional Buildings. TheArchitect of the Capitol would be required to plan and implement an energy and water conservationstrategy for congressional buildings that would be consistent with that required of other federalbuildings. An annual report would be required. Up to $2 million would be authorized. Section 310of the Legislative Branch Appropriations Act of 1999 called for the Architect of the Capitol (AOC)to develop an energy efficiency plan for congressional buildings. Section 102: Energy Management Requirements. The baseline for federal energy savingswould be updated from FY1985 to FY2001 and a new goal of 20% reduction would be set forFY2013. At that time, DOE would be directed to assess progress and set a new goal for FY2023. Section 202 of Executive Order 13123 uses FY1985 as the baseline for measuring federal buildingenergy efficiency improvements and calls for a 35% reduction in energy use per gross square footby FY2010. Section 103: Energy Use Measurement and Accountability. Federal buildings would berequired to be metered or sub-metered by late 2010, to help reduce energy costs and promote energysavings. Section 104: Procurement of Energy-Efficient Products. Statutory authority would becreated to require federal agencies to purchase products certified as energy-efficient under the EnergyStar program or energy-efficient products designated by the Federal Energy Management Program(FEMP). Currently, Section 403 of Executive Order 13123 directs federal agencies to purchaselife-cycle cost-effective Energy Star products. Section 105: Energy Saving Performance Contracts . Federal agencies would beempowered to continue using energy savings performance contracts (ESPCs) indefinitely. Section801(c) of the National Energy Conservation Policy Act (NECPA, P.L. 95-619 ) provides for federaluse of ESPCs through the end of FY2002. Section 106: Energy Savings Performance Contracts Pilot Program for Non-BuildingApplications . The Department of Defense and other federal agencies would be authorized to enterinto up to 10 energy savings performance contracts for non-building applications. The paymentsto be made by the federal government could not exceed $200 million for all such contractscombined. Section 105 (107) : Voluntary Commitments to Reduce Industrial Energy Intensity. DOE would be authorized to form voluntary agreements with industry sectors or companies toreduce energy use per unit of production by 2.5% per year. While there is no current statutoryauthority, industry energy efficiency programs have been in place, such as the former Climate Wiseprogram at the Environmental Protection Agency (EPA). Section 106 (108) : Advanced Building Efficiency Testbed. DOE would be required tocreate a program to develop, test, and demonstrate advanced federal and private building efficiencytechnologies. Section 107 (109) : Federal Building Performance Standards. DOE would be directed toset revised energy efficiency standards for new federal buildings at a level 30% stricter than industryor international standards. Mandatory energy efficiency performance standards for federal buildingsare currently set in Section 305(a) of P.L. 94-385 and implemented through 10 CFR Part 435. Section 108 (110) : Increased Use of Recovered Mineral Component in Federally FundedProjects. Federally funded construction projects would be required to increase the procurement ofcement and concrete that used recovered material. Section 121: Low Income Home Energy Assistance Program (LIHEAP). Increasedfunding would be authorized for the LIHEAP grant program for FY2004 through FY2006. Department of Health and Human Services funding for LIHEAP is currently authorized throughFY2003 in the Human Services Authorization Act of 1998. Section 122: Weatherization Assistance. Increased funding would be authorized for theDOE weatherization grant program for FY2004 through FY2006. Funding for the program is currently authorized through FY2003 under 42 U.S.C. 6872. Section 123: State Energy Programs. New requirements would be set for state energyconservation goals and plans. Also, increased funding would be authorized for FY2004 throughFY2006 for DOE state energy grant programs. Section 124: Energy-Efficient Appliance Rebate Programs. DOE would be authorizedto fund rebate programs in eligible states to support residential end-user purchases of Energy Starproducts. Section 125: Energy-Efficient Public Buildings. A grant program would be created forenergy-efficient renovation and construction of local government buildings. Section 126: Low Income Community Energy Efficiency Pilot Program. A pilotenergy-efficiency grant program would be created for local governments, private companies,community development corporations, and Native American economic development entities. Section 131: Energy Star Program. DOE and EPA would be given statutory authority tocarry out the Energy Star program, which identifies and promotes energy-efficient products andbuildings. Section 132: HVAC Maintenance Consumer Education Program. DOE would berequired to implement a public education program for homeowners and small businesses thatexplained the energy-saving benefits of improved maintenance of heating, ventilating, and airconditioning equipment. Also, the Small Business Administration would be directed to assist smallbusinesses in becoming more energy-efficient. Section 133: Energy Conservation Standards for Additional Products. DOE would bedirected to issue a rule that determined whether efficiency standards should be set for standby modein battery chargers and external power supplies. Also, energy efficiency standards would be set bystatute for exit signs, traffic signals, torchieres (floor lamps), and distribution transformers (electricutility equipment). Further, DOE would be directed to issue a rule that prescribed efficiencystandards for ceiling fans, vending machines, commercial refrigerators and freezers, unit heaters(fan-type heaters, usually portable), and compact fluorescent lamps. Section 134: Energy Labeling. The Federal Trade Commission (FTC) would be requiredto consider improvements in the effectiveness of energy labels for consumer products. Also, DOEor FTC would be directed to prescribe labeling requirements for products added by this section ofthe bill. The FTC is currently required by Section 324(a) of the Energy Policy and Conservation Act( P.L. 94-163 ) to issue rules for energy efficiency labels on consumer products (42 U.S.C. 6294). Section 141: Capacity Building for Energy-Efficient, Affordable Housing. Activitieswould be required that would provide energy-efficient, affordable housing and other residentialmeasures under the HUD Demonstration Act. Section 142: Increase of CDBG Public Services Cap for Energy Conservation andEfficiency Activities. The amount of community development block grant (CDBG) public servicesfunding that could be used for energy efficiency would be increased to 25%. The current limit is15% under Section 105(a)(8) of the Housing and Community Development Act of 1974. Section 143: FHA Mortgage Insurance Incentives for Energy-Efficient Housing. Solarenergy equipment can be eligible for up to 30% of the total amount of property value that can becovered by Federal Housing Administration mortgage insurance. The current limit is 20% underSection 203(b)(2) of the National Housing Act. Section 144: Public Housing Capital Fund. The Public Housing Capital Fund would bemodified to include certain energy and water use efficiency improvements. Under Section 9 of theUnited States Housing Act, the Capital Fund is available to public housing agencies to develop,finance, and modernize public housing developments and to make management improvements tothese housing facilities. There is currently no provision for energy conservation projects that involvewater-conserving plumbing fixtures and fittings. Section 145: Grants for Energy-Conserving Improvements for Assisted Housing. HUDwould be directed to provide grants for certain energy and water efficiency improvements tomultifamily housing projects. Section 2(a)(2) of the National Housing Act, as amended by Section251(b)(1) of the National Energy Conservation Policy Act, empowers HUD to make grants forenergy conservation projects in public housing, but it has no provision for energy- andwater-conserving plumbing fixtures and fittings. Section 146: North American Development Bank. The North American DevelopmentBank would be encouraged to finance energy efficiency projects. Section 147: Energy-Efficient Appliances. Public housing agencies would be required topurchase cost-effective Energy Star appliances. Section 148: Energy-Efficient Standards. The energy efficiency standards and codes thatthe federal government encourages states to use would be changed from the codes set by the Councilof American Building Officials to the 2000 International Energy Conservation Code. Section 149: Energy Strategy for HUD. The Secretary of Housing and Urban Developmentwould be required to implement an energy conservation strategy to reduce utility expenses throughcost-effective energy-efficient design and construction of public and assisted housing. Section 201: Assessment of Renewable Energy Resources. DOE would be required toreport annually on resource potential, including solar, wind, biomass, ocean (tidal, wave, current, andthermal), geothermal, and hydroelectric energy resources. DOE would be required to reviewavailable assessments and undertake new assessments as necessary, accounting for changes in marketconditions, available technologies, and other relevant factors. The resource potential for renewableshas not been assessed as thoroughly as that for conventional energy resources and the potential maybe altered somewhat by climate change. Section 202: Renewable Energy Production Incentive. Eligibility for the existingincentive would be extended through 2023 and expanded to include electric cooperatives and tribalgovernments. Qualifying resources would be expanded to include landfill gas. Federal law currentlyprovides a 1.5 cent/kwh incentive for power produced from wind and biomass by state and localgovernments and non-profit electrical cooperatives. (1) The incentive is funded by appropriations to DOE and was createdto encourage public agencies, which are not eligible for tax incentives, in a fashion parallel to therenewable energy production tax credit for private sector businesses (Section 1302). This incentivehas played a major role in wind energy development and is viewed by the wind industry as thesingle-most important provision in the bill. The Senate version would have added incremental hydroand ocean energy to the list of eligible resources. Section 203: Federal Purchase Requirement. Federal agencies would be required, to theextent ""economically feasible and technically practicable,"" to purchase power produced fromrenewables. The collective total percentage of renewables use, as a share of total federal electricenergy use, would start at 3% in FY2005, rise to 5% in FY2008, and then reach 7.5% in 2011 andall subsequent years. Renewable energy produced at a federal site, on federal lands, or on Indianlands would be eligible for double credit toward the purchase requirement. This provision aims tohelp develop the market for renewables. A report to Congress would be required every two years. Section 204: Insular Areas Energy Security. This section includes congressional findingsthat electric power transmission and distribution lines in insular areas are not adequate to withstandhurricane and typhoon damage, and that an assessment is needed of energy production, consumption,infrastructure, reliance on imported energy, and indigenous sources of energy in insular areas. Federal law currently requires comprehensive energy plans for insular areas that describe thepotential for renewable energy resources. (2) This section would require the Secretary of the Interior, inconsultation with the Secretary of Energy and the head of government of each insular area, to updateinsular area plans to reflect these findings, and to seek to reduce energy imports by increasing energyconservation and energy efficiency and by attempting to maximize the use of indigenous resources.Annual appropriations would be authorized that would, in part, be used for matching grants forprojects designed to protect electric power transmission distribution lines in one or more of theterritories of the United States from damage caused by hurricanes and typhoons. Section 205: Use of Photovoltaic Energy in Public Buildings. The General ServicesAdministration (GSA) would be authorized to encourage use of solar photovoltaic energy systemsin new and existing buildings. This provision aims to help reduce costs and, thereby, stimulate themarket for photovoltaic equipment. Section 206: Grants to Improve the Commercial Value of Forest Biomass. TheSecretaries of Agriculture and the Interior would be authorized to make grants of up to $20 per greenton (a ton of freshly sawed or undried wood or other biomass) to individuals, businesses,communities, and Indian tribes for the commercial use of biomass for fuel, heat, or electric power. Also, the Secretaries of Agriculture and the Interior may make grants as an incentive to projects thatdevelop ways to improve the use of, or add value to, biomass. Preference is given to small towns,rural areas, and areas at risk of damage to the biomass resource. This provision attempts to addressthe increasing risk of wildfires and the growing threat to forests of insect infestation and disease. Section 207: Federal Procurement of Biobased Products. This provision amends theexisting requirement (3) thatfederal agencies give procurement preference to items composed of the highest percentage ofbiobased products practicable by adding a specific reference to degradable six-pack rings. (4) Sections 211-227: Geothermal Energy Leasing Amendments. Much of the nation'sgeothermal energy potential is located on federal lands. Reducing delays in the federal geothermalleasing process and reducing royalties could increase geothermal energy production, although theenvironmental impact of greater geothermal development is also an issue. Current Law. Competitive geothermal lease sales are based on whether lands are within aknown geothermal resource area (Geothermal Steam Act of 1970, U.S.C. 1003). Geothermalproduction on federal lands is charged a royalty of 10%-15% under Section 5 of the GeothermalSteam Act. The royalty is imposed on the amount or value of steam or other form of heat derivedfrom production under a geothermal lease. The Secretary of the Interior can withdraw public lands from leasing or other public use andmodify, extend, or revoke withdrawals under provisions in the Federal Land Policy and ManagementAct of 1976 (FLPMA, 43 U.S.C. 1714). At certain intervals the Secretary may readjust terms andconditions of a geothermal lease, including rental and royalty rates. Annual rental fees of not lessthan $1 per acre on geothermal leases are paid in advance. The primary lease term is 10 years andshall continue as long as geothermal steam is produced or used in commercial quantities. Rents are$1 per acre or fraction thereof for each year of a geothermal lease. Conference Agreement. Amendments to the Geothermal Steam Act would change leaseprocedures for competitive and non-competitive lease sales. Competitive lease sales would be heldevery two years. If there were no competitive bid, then lands would be made available for two yearsunder a non-competitive process (Sec. 212) . A fee schedule in lieu of any royalty or rental paymentswould be established for low-temperature geothermal resources. Existing geothermal leases may beconverted to leases for direct utilization of low-temperature geothermal resources (Sec. 213) .Royalties from geothermal leases would be 3.5% of the gross proceeds from geothermal electricitysales and 0.75% of the gross proceeds from the sale of items produced from direct use of geothermalenergy. This section takes effect on October 1, 2004. (Sec. 214) . A memorandum of understandingbetween the Secretaries of the Interior and Agriculture should include provisions that would identifyknown geothermal areas on public lands within the National Forest system and establish anadministrative procedure that would include time frames for processing lease applications (Sec 215) . The Secretary the Interior would review all areas under moratoria or withdrawals and reportto Congress on whether the reasons for withdrawal still applied (Sec. 216 ). The Secretary couldreimburse lessees for the costs of environmental analyses required by the National EnvironmentalPolicy Act of 1969 (NEPA, 30 U.S.C. 1001 et seq.) through royalty credits under certaincircumstances. This section's effective date is changed from the date of enactment to October1, 2004. (Sec. 217) . The U.S. Geological Survey (USGS) would provide Congress with anassessment of current geothermal resources (Sec. 218) . Cooperative or unit plans for geothermaldevelopment would be promoted (Sec. 219) . Leasable minerals produced as a byproduct of ageothermal lease would pay royalties under the Mineral Leasing Act (30 U.S.C. 181) (Sec. 220) . Sections 8(a) and (b) of the Geothermal Steam Act would be repealed, which would eliminatethe Secretary's authority to readjust geothermal rental and royalty rates at ""not less than 20 yearintervals beginning 35 years after the date geothermal steam is produced"" (Sec. 221). Annual rentalswould be credited towards the royalty of the same lease (Sec. 222) , and the primary lease term couldbe extended for two additional five-year terms if work commitments were met (Sec. 223) . Ifproduction from a geothermal lease were suspended during a period in which a royalty was required,royalties would be paid in advance until production resumed (Sec. 224) . The conference agreementwould establish rental rates for competitive and non-competitive lease sales (Sec. 225 ). A joint reportwithin two years would be submitted to detail the differences between the military geothermalprogram and the civilian geothermal program, including recommendations for legislation oradministrative actions to improve the effectiveness of the program (Sec. 226). About two dozentechnical amendments are included in Section 227 . Section 231: Alternative Conditions and Fishways. Under the Federal Power Act (FPA,16 U.S.C. 797 et. seq.) the Federal Energy Regulatory Commission (FERC) has primaryresponsibility for balancing multiple water uses and evaluating hydropower relicensing applications. However, the FPA also creates a role in the licensing process for federal agencies that are responsiblefor managing fisheries or federal reservations (e.g. national forests, etc.). Specifically, sections 4(e)and 18 of the FPA give certain federal agencies the authority to attach conditions to FERC licenses. For example, federal agencies may require applicants to build passageways through which fish cantravel around the dam, schedule periodic water releases for recreation, ensure minimum flows ofwater for fish migration, control water release rates to reduce erosion, or limit reservoir fluctuationsto protect the reservoir's shoreline habitat. Once an agency issues such conditions, FERC mustinclude them in its license. While these conditions often generate environmental or recreationalbenefits, they may also require construction expenditures and may increase costs by reducingoperational flexibility. Reflecting recommendations by FERC and the hydropower industry, both the House andSenate versions of H.R. 6 included provisions to alter federal agencies'license-conditioning authority. The conference bill includes the House language. It would establishnew requirements for federal agencies that set conditions or fishway requirements for hydroelectriclicenses under sections 4(e) and 18 of the Federal Power Act. License applicants could initiate atrial-type hearing on factual issues related to an agency's conditions. Federal agencies would haveto consider alternative conditions proposed by the license applicant and accept a proposed alternativeif it would provide for the adequate protection and utilization of a federal reservation, and wouldeither cost less or improve a project's operational efficiency. An agency would have to justify itsdecision to accept or to reject the alternative after giving equal consideration to both conditions'effects on a broad range of factors. The bill would also establish a system for reviewing an agency'sdecision if it rejected the applicant's alternative. Section 241: Hydroelectric Production Incentives. The Secretary of Energy would makeincentive payments to non-federal owners or operators of hydroelectric facilities for power that isfirst produced within 10 years of the date of enactment by generating equipment added to existingfacilities. Payments of 1.8 cents per kilowatt-hour (kWh), up to a total of $750,000/year, may bemade for up to 10 years from the first year after the facility begins operating. Section 242: Hydroelectric Efficiency Improvement. The Secretary of Energy would makeincentive payments to the owners or operators of hydroelectric facilities who make capitalimprovements on existing facilities that improve efficiency by at least 3%. Payments would notexceed 10% of the improvement cost and would not exceed $750,000 at any single facility. Section 243: Small Hydroelectric Power Projects. This provision would amend the PublicUtility Regulatory Policy Act of 1978 (16 U.S.C. 2078), to change the date on or before which a dammust be constructed to qualify as an existing dam, from April 20, 1977, to March 4, 2003. Section 244: Increased Hydroelectric Generation at Existing Federal Facilities. Within18 months of enactment, the Secretaries of the Interior and Energy, in consultation with the Secretaryof the Army, would submit a study of the potential for increasing electric power productioncapability at federally owned or operated water regulation, storage, and conveyance facilities. Section 245: Shift of Project Loads to Off-Peak Periods. The Secretary of the Interiorwould review electric power consumption by the Bureau of Reclamation facilities for waterpumping, and, with the consent of affected irrigation customers, adjust water pumping schedules toreduce power consumption during periods of peak electric power demand. This section would notaffect Interior's existing obligations to provide electric power, water, or other benefits. Section 246: Corps of Engineers Hydropower Operation and Maintenance Funding. Thissection would authorize the administrators of federal power marketing administrations (PMAs) totransfer receipts to the Corps for operations and maintenance activities at facilities assigned tothem. This provision was not in either the House or Senate version of H.R. 6 . Section 246 (247) : Limitation on Certain Charges Assessed to the Flint Creek Project,Montana. Charges for using federal land for the Flint Creek hydroelectric facility would be limitedto $25,000 per year. This provision was not in either the House or Senate version of H.R. 6 . Section 247 (248) : Reinstatement and Transfer of Hydroelectric License. The licensefor FERC project 2696, the Stuyvesant Falls Hydroelectric Project, would be reinstated andtransferred to the Town of Stuyvesant, NY. This provision was not in either the House or Senateversion of H.R. 6 . Section 301: Permanent Authority to Operate the Strategic Petroleum Reserve. Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and ConservationAct (EPCA, P.L. 94-163 ) to help prevent a repetition of the economic dislocation caused by the1973-74 Arab oil embargo. Physically, the SPR comprises five underground storage facilities,hollowed out from naturally occurring salt domes, located in Texas and Louisiana. In 2000, Congressalso authorized establishment of a Northeast Heating Oil Reserve (NHOR) where two million barrelsof home heating oil is kept in leased, above-ground storage, to be released if the price of heating oilexceeds a calculated historic average. The authorities governing the SPR and NHOR are includedin the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) and are currently authorizedthrough FY2008 by P.L. 108-7 . These authorities also provide for U.S. participation in emergencyactivities of the International Energy Agency (IEA) without risking violation of antitrust law andregulation. The conference bill would permanently reauthorize both programs, avoiding awkwardperiods such as occurred in 2000 when differences between the House and Senate over certain issuesresulted in a period of several months when the authorities were not in force. Section 302: National Oilheat Research Alliance. The National Oilheat Research Alliance(NORA) was established by the Energy Policy Act of 2000 ( P.L. 106-460 ), and assesses a fee of$.002 per gallon on home heating oil sold by retail distributors. The proceeds, among otherpurposes, are dedicated to research on improving the efficiency of furnaces and boilers, andproviding education and training resources to professionals in the industry. The conference billwould extend the authorization for NORA until nine years (2010) after the date on which theAlliance was established. Section 311: Definition of Secretary. In this subtitle, ""Secretary"" means Secretary of theInterior. Section 312: Program on Oil and Gas Royalties-In-Kind. The federal government wouldbe allowed to continue to receive physical quantities of oil and gas as royalty-in-kind payments ifit can receive market value for the product and revenues greater than or equal to the revenues itwould have received under a comparable cash-payment royalty. The royalty product would have tobe placed in marketable condition (as defined in H.R. 6 ) at no cost to the United States. Small refineries would receive preferential treatment if supplies on the market were insufficient. Areport to Congress in each year from FY2004-FY2013 would explain among, other things, how theSecretary determined whether the amount received was at least the amount that would have beentaken in cash and how a lease was evaluated as to whether royalty in kind were taken. This sectionwould have taken effect upon enactment of the act. In S. 2095 , this section wouldtake effect on October 1, 2004. Section 313: Marginal Property Production Incentives. The Secretary of the Interiorwould have the authority to reduce or terminate royalties for independent producers under certainconditions. The Secretary would be authorized to prescribe different standards for marginalproperties in lieu of those in this section. This section would take effect on October 1, 2004. Section 314: Incentives for Natural Gas Production From Deep Wells in the ShallowWaters of the Gulf of Mexico. Royalty reductions would be provided for shallow water deep gasproduction at certain depths not later than180 days after enactment. An ""ultra-deep"" well would alsobe defined in this section. This section would take effect on October 1, 2004. Section 315: Royalty Reductions for Deep Water Production. Royalty reductions wouldbe provided for deepwater areas at fixed production levels at certain depths. Section 316: Alaska Offshore Royalty Suspension. Planning areas in offshore Alaskawould be included under section 8(a)(3)(B) of the Outer Continental Shelf Lands Act (OCSLA, 43U.S.C. 1337(a)(3)(B)). This section of OCSLA currently provides a mechanism for the Secretary ofthe Interior to reduce or eliminate royalty or net profit share established in leases for oil and gasproduction in Gulf of Mexico planning areas. This provision was not in the House or Senate bills. Section 317: Oil and Gas Leasing in the National Petroleum Reserve in Alaska. Thecompetitive leasing system for oil and gas in the National Petroleum Reserve in Alaska would bemodified. Leases would be issued for successive 10-year terms if leases met specific criteria. Activeparticipation would be sought by the state of Alaska and Regional Corporations as defined under theAlaska Native Claims Settlement Act (43 U.S.C. 1602). The Secretary of the Interior could grantroyalty reductions if they were found to be in the public interest. This section was not in the Houseor Senate bills. Section 318: Orphaned, Abandoned, or Idled Wells on Federal Land. Within a year afterenactment, the Secretary would establish a technical assistance program to help states remediate andclose abandoned or idled wells. Technical and financial assistance would be made available over a10-year period to quantify and mitigate environmental dangers. A program would be established forreimbursing the private sector with credits against federal royalties for reclaiming, remediating, andclosing orphaned wells. Section 319: Combined Hydrocarbon Leasing. The Mineral Leasing Act would beamended to allow separate leases for tar sands and for oil and gas in the same area. Tar sands wouldbe leased under the same system as for oil and gas and would require a minimum accepted bid of $2per acre. Section 320: Liquefied Natural Gas. This section would amend the Natural Gas Act tolimit the criteria upon which FERC could reject a proposed liquefied natural gas (LNG) project.Under the conference bill, FERC could not deny a ""certificate of convenience and necessity"" solelybecause a facility would be at least partly dedicated to importing the project sponsor's own naturalgas. Current Law. Under the Natural Gas Act, FERC reviews jurisdictional project proposals(including those for natural gas importation) to determine if a public need would be met. A widevariety of criteria are applied in making such a determination. The Commission can reject a projectfor a range of reasons, including impact on the competitive nature of U.S. natural gas markets. Policy Context. Growth in U.S. natural gas demand has created a need for additional gassupplies, and imports from plentiful reserves abroad -- in the form of LNG -- have attracted recentinterest. An increasing number of projects are under consideration, and FERC may have to pick andchoose which to certificate. Section 321: Alternate Related Uses on the Outer Continental Shelf. The Secretarywould be authorized to grant rights-of-way or easements on the OCS for energy-related activity ona competitive or noncompetitive basis and would charge fees for such access. A surety bond or otherfinancial guarantee would be required. Section 322: Preservation of Geological and Geophysical Data. Under the proposed""National Geological and Geophysical Data Preservation Program Act of 2003,"" the InteriorDepartment through the U.S. Geological Survey would establish a program to archive geologic,geophysical, and engineering data, maps, well logs, and samples; provide a national catalog ofarchival material; and provide technical and financial assistance related to the archival material. State agencies that elect to be part of the data archive system that stores and preserves geologicsamples would receive 50% financial assistance, subject to the availability of appropriations. Privatecontributions would be applied to the non-federal share. Appropriations of $30 million per year fromFY2004 through FY2008 would be authorized. Section 323: Oil and Gas Lease Acreage Limitations. Lease acreage limits would bealtered so that additional federal lands would not fall under the Mineral Leasing Act's single-stateownership limitations. Section 324: Assessment of Dependence of State of Hawaii on Oil. Concern surfacesperiodically about the vulnerability of U.S. territories and Hawaii in the event of an oil supplydisruption. The conference bill would require a broad study that would assess the ""economicimplication"" of Hawaii's reliance upon oil in both the electricity and transportation sectors. Thereport would explore the technical and economic feasibility of displacing the use of residual fuel oilfor the generation of electricity with renewables and liquefied natural gas. Delivery of a report wouldbe required roughly 10 months after enactment. Section 325: Deadline for Decision on Appeals under the Coastal Zone ManagementAct. This section would replace language in Section 319 of the Coastal Zone Management Act of1972 (CZMA),as amended (16 U.S.C. 1465). Section 319 had been added as an amendment in 1996. It established a time line for appeals to the Secretary of Commerce on consistency determinationswhen a state and federal agency are unable to reach agreement. The consistency provisions, set forthin Section 307 of the CZMA, require federal activities in or affecting the coastal zone to beconsistent with the policies of a federally approved and state-administered coastal zone managementplan. (Federal activities include activities and development projects performed by a federal agencyor by a contractor on behalf of a federal agency, and federal financial assistance.) A proposal tomodify the appeals time line with deadlines very similar to this legislation was included in aproposed rule on federal consistency, published in the June 11, 2003, Federal Register . A final rulehas not been issued. The consistency provision creates an unusual relationship where states can halt most federalactions that are incompatible with state interests. When enacted, the consistency requirement wasviewed as a main reason why states would pursue development and implementation of coastal planssince the other incentive to participate, federal financial grants, always has been modest. This viewappears to have some validity as 34 or the 35 eligible states and territories are now administeringfederally approved coastal management programs. Current Law. The consistency provisions in Section 307 of the CZMA guides stateconsideration of whether a proposed federal activity will be compatible with a federally approvedand state-administered coastal zone management plan. Since the first state plan was approved in themid-1970s, there has been considerable friction between states and federal agencies over the reachof the consistency provisions. States have sought broader application to have a strong role indecisions about the largest possible array of proposed federal activities, while the federal governmenthas sought narrower interpretations, especially relating to offshore energy development. Determining an exact boundary separating actions on which the state is to have a primary role inhalting a proposal from actions on which the state does not have such powers has been a subject offederal appeals and litigation, including decisions by the U.S. Supreme Court (notably Secretary ofthe Interior v. California , 464 U.S. 312 (1984), in which the court determined that the sale of oil andgas leases on the outer continental shelf was not an act affecting the coastal zone). When a state and a federal agency cannot reach an agreement on a consistency determination,the law and regulations lay out an elaborate process for resolving that disagreement. Mostdisagreements are resolved through this process, but if no agreement can be reached, the final stepis an appeal to the Secretary of Commerce to make a decision. Appeals to the Secretary have notbeen common. According to citations of appeals posted on the website of the Office of Ocean andCoastal Resource Management in the National Oceanic and Atmospheric Administration (NOAA),as of December 30, 2003, 38 consistency determinations were appealed to the Secretary between1984 and 1999, and 19 of them involved proposed activities by oil companies. The appeals process,like all other aspects of consistency, is currently covered under a final rule issued by NOAA in theDecember 8, 2000, Federal Register. Section 319 in current law has less detail than the proposed amendment. It states that theSecretary will either issue a final decision on the appeal or publish a notice in the Federal Register stating why a decision cannot be reached within 90 days after the record has closed. If the Secretarypublishes a notice that a decision has not been made, that decision must be issued within 45 days ofthe date of publication of that notice. Conference Agreement. The conference agreement would replace the current Section 319of the CZMA with a new set of provisions that would stipulate three sequential deadlines, andthereby limit the overall length of this appeals process to a total of 270 days from the date when anappeal is filed. The first deadline would be for the Secretary of Commerce to publish an initialnotice of an appeal in the Federal Register within 30 days of the appeal's filing. The second deadlinewould be that the administrative record would be open for no more than 120 days. During that timeperiod, the Secretary could receive filings related to the appeal. The final deadline would give theSecretary up to 120 days to issue a decision after the administrative record had been closed. Thesecond and third deadlines would also apply to all pending appeals not resolved prior to the date ofenactment. Also, any appeals in which the record is open on the date of enactment would have tobe closed within 120 days of that date. Policy Context. Consistency appeals have been contentious and, in some instances, theappeals process has dragged on for long time periods. The 1996 amendments in Section 319 weremeant to address those delays by establishing some time limits. This has proved unsatisfactory tosome, who seek additional statutory language that would remove decisions about deadlines from theunpredictable rule-making process by defining the length of component steps in law, and thereforethe overall process, after an appeal to the Secretary has been filed. Section 326: Reimbursement for Costs of NEPA Analysis, Documentation, and Studies. The Minerals Leasing Act would be amended to provide reimbursement for costs of NEPA-relatedstudies under certain circumstances. This provision would not take effect until October 1, 2008. Section 327: Hydraulic Fracturing. This section would amend the Safe Drinking WaterAct (SDWA, 42 U.S.C. 300h(d)) to specify that the definition of ""underground injection"" excludesthe injection of fluids or propping agents used in hydraulic fracturing operations for oil and gasproduction. In response to a 1997 court ruling directing EPA to regulate hydraulic fracturing asunderground injection, Section 327 would expressly preclude EPA from regulating the undergroundinjection of fluids used in hydraulic fracturing for oil and gas production. The provision adoptslanguage from the House bill that exempts hydraulic fracturing from the definition of undergroundinjection. The Senate bill directed EPA to study the effects of hydraulic fracturing ofhydrocarbon-bearing formations on underground sources of drinking water, and to determinewhether regulation was necessary. The Senate bill also directed the National Academy of Sciencesto study the effects of coalbed methane production on surface and ground water resources. Current Law. The SDWA required EPA to promulgate regulations for state undergroundinjection control (UIC) programs that included minimum requirements for programs to preventunderground injection that endangers sources of drinking water. The Act specifies that UIC programregulations may not prescribe requirements that interfere with ""any underground injection for thesecondary or tertiary recovery of oil or natural gas, unless such requirements are essential to assurethat underground sources of drinking water will not be endangered by such injection"" (SDWA§1421(b)(2)). Policy Context. EPA reports that before 1997 it had not considered regulating hydraulicfracturing for oil and gas development, because the Agency did not view this well-productionprocess as an activity subject to regulation under SDWA's UIC program. In 1997, the 11th CircuitCourt of Appeals ruled that the injection of fluids for the purpose of hydraulic fracturing constitutedunderground injection as defined under the SDWA, that all underground injection must be regulated,and that hydraulic fracturing of coalbed methane wells in Alabama should be regulated under thestate's UIC program ( LEAF v. EPA , 118 F. 3d 1467). In 1999, EPA approved a revision toAlabama's UIC program to include regulations for hydraulic fracturing of coalbed methane wells. Following the court's decision, EPA decided it needed more information before makingfurther decisions regarding the regulation of hydraulic fracturing, and undertook a study to evaluateimpacts on drinking water sources from hydraulic fracturing practices used in coalbed methaneproduction. In 2002, EPA issued a draft report that identified water quality and quantity problemsattributed to hydraulic fracturing in several states in the West and Southeast, but tentativelyconcluded that the overall impact was small. (5) EPA is expected to issued a final report in early 2004. In 2003, EPA's National Drinking Water Advisory Council recommended that EPA (1) work,either through voluntary means or regulation, to eliminate the use of diesel fuel and related additivesin fracturing fluids that are injected into formations containing drinking water sources; (2) continueto study the health and environmental problems that could occur from hydraulic fracturing forcoalbed methane production; and (3) defend its authority and discretion to implement the UICprogram in a way that advances protection of groundwater resources from contamination. Section 328: Oil and Gas Exploration and Production Defined. This section wouldprovide a permanent exemption from Clean Water Act (CWA) stormwater runoff rules for theconstruction of exploration and production facilities by oil and gas companies or the roads thatservice those sites. Currently under that Act, the operation of facilities involved in oil and gasexploration, production, processing, transmission, or treatment is generally exempt from compliancewith stormwater runoff regulations, but the construction of associated facilities is not. Theamendment would modify the CWA to specifically include construction activities in the types of oiland gas facilities that are covered by the law's statutory exemption from stormwater rules. The issue arises from stormwater-permitting rules for small construction sites and municipalseparate storm sewer systems that were issued by the Environmental Protection Agency (EPA) in1999 and which became effective March 10, 2003. Those rules, known as Phase II of the CleanWater Act stormwater program, require most small construction sites disturbing one to five acresand municipal separate storm sewer systems serving populations of up to 100,000 people to have aCWA discharge permit. The permits require pollution-prevention plans describing practices forcurbing sediment and other pollutants from being washed by stormwater runoff into local waterbodies. Phase I of the stormwater program required construction sites larger than five acres(including oil and gas facilities) and larger municipal separate storm sewer systems to obtaindischarge permits beginning in 1991. (6) As the March 2003 compliance deadline approached, EPA proposed a two-year extensionof the Phase II rules for small oil and gas construction sites to allow the agency to assess theeconomic impact of the rule on that industry. EPA said the delay was needed to comply withPresident Bush's Executive Order 13211, which directed agencies to consider the effects of theiractions on energy-related production activities. EPA had initially assumed that most oil and gasfacilities would be smaller than one acre and thus excluded from the Phase II rules, but recentDepartment of Energy data indicate that several thousand new sites per year would be of sizessubject to the rule. The postponement did not affect other industries or small cities covered by the1999 rule. Conference Agreement. The provision in the conference bill is similar to one inHouse-passed H.R. 6 : It makes EPA's two-year delay permanent and makes it applicableto construction activities at all oil and gas development and production sites, regardless of size,including those covered by Phase I of the stormwater program. The Senate version included nosimilar provision. Industry officials contended that the EPA stormwater rule created costlypermitting requirements, even though the short construction period for drilling sites carried littlepotential for stormwater runoff pollution. Supporters said the provision was intended to clarifyexisting CWA language. Opponents argued that the provision did not belong in the energylegislation and that there was no evidence that construction at oil and gas sites caused less pollutionthan other construction activities. However, they were unsuccessful in efforts to remove theprovision during House consideration of H.R. 6 in April 2003 and also during conferencedeliberations. On November 7, by a 188-210 vote, the House defeated a motion offered byRepresentative Filner that would have instructed conferees to strike the oil and gas exemptionprovision from the bill. Section 329: Outer Continental Shelf Provisions. For applications to build deepwaterports, the Secretary of Transportation could use environmental impact statements or other studiesprepared by other federal agencies instead of conducting separate studies. Information from state andlocal governments and private-sector sources could also be used. This provision was not includedin the House and Senate bills. Section 330: Appeals Relating to Pipeline Construction or Offshore MineralDevelopment Projects. Appeals of decisions under the Coastal Zone Management Act on naturalgas pipelines and offshore energy projects would be based exclusively on the record compiled byFERC or the relevant permitting agency. It would be the sense of Congress that appeals relating tonatural gas pipeline construction would be coordinated within FERC's established timeframes undersections 3 and 7 of the Natural Gas Act (15 U.S.C. 717 b 717 (f). Section 331: Bilateral International Oil Supply Agreements. Prior to the Camp Davidaccords, the United States entered into treaties and agreements with Israel to provide oil to thatnation if Israel could not purchase all the oil it needed in the markets. This commitment wasrenewed in 1995 and requires reauthorization in early FY2005. This provision would have the effectof making these agreements permanent and with the force of law. Sections 332 and 333: Natural Gas Market Reform. These sections would address naturalgas price reporting issues in the wake of the Enron scandal. During extremely volatile marketepisodes in 2000-2001 -- when gas prices briefly soared to unprecedented levels -- it was alleged thatmarket participants reported false trading information to price-reporting services. Beyond creatinghigher prices for the market participants involved, these price-reporting schemes arguably resultedin higher transactions prices for unrelated gas deals whose prices were derived from published priceindices artificially escalated by the allegedly false reports. Section 332 , entitled ""Natural Gas Market Reform,"" would modify the Commodity ExchangeAct (CEA, 7 U.S.C. 13), banning ""knowingly false or knowingly misleading or knowingly inaccuratereports."" It also increases the penalties for false reporting. Section 333 , entitled ""Natural Gas Market Transparency,"" would direct FERC to issue rulescalling for the timely reporting of natural gas prices and availability and to evaluate the data foraccuracy. The language specifies that FERC not impinge on the role of commercial publishers ofnatural gas prices. Current Law. The Commodity Futures Trading Commission regulates public trading in gasunder a variety of securities laws, including the CEA FERC also has existing authority to preventmarket manipulation and issued Order 644 on November 13, 2003. Order 644 is designed to preventmarket abuse, set ""rules of the road,"" and provide a more stable marketplace for both electricity andnatural gas. It establishes rules relating to market manipulation, data reporting, and record retention.It also makes sellers subject to disgorgement of unjust profits and revocation of FERC authoritiesto operate under market-based rules (i.e. without direct regulatory supervision) and/or to do business. The New York Mercantile Exchange (NYMEX) -- where much of the trading in natural gasfutures takes place -- also has some authority to prevent trading abuses on its platform. In November2003, it formulated a proposal regarding strict record keeping, price disclosure, and use of a commoncomputer-based data format, such that trading information could be electronically scanned to findtrading anomalies. Sections 341-348: Leasing and Permitting Processes. These sections would addressconcerns over delays in the permitting process for oil and gas development after leases are granted. Some lease stipulations are considered by the Administration to be impediments to domestic oil andgas development. However, concerns have also been raised that faster permitting could bypassimportant environmental protections. Current Law. The federal oil and gas leasing program is governed under the MineralLeasing Act of 1920, as amended (30 U.S.C. 181 et. seq.). Bureau of Land Management (BLM)procedures for an application for a permit to drill (APD) are contained in 43 CFR 3162.3-1. TheAPD is posted for 30 days. Within 5 working days after the 30-day period, the BLM consults withsurface-managing agencies whose consent is also required, then notifies the applicant of the results.The BLM is also required to process the application within the 35-day period. The BushAdministration has taken some action on this issue, including processing and conductingenvironmental analyses on multiple permit applications with similar characteristics, implementinggeographic area development planning for oil and gas fields or areas within a field, and allowing forblock surveys of cultural resources. Conference Agreement. An Office of Federal Energy Project Coordination (FEPC) wouldbe established to review and report on accomplishments that are considered more efficient andeffective for federal permitting (Sec. 341) . The Secretary of the Interior would perform an internalreview of the federal onshore oil and gas leasing and permitting process with particular focus onlease stipulations affecting the environment and conflicts over resource use (Sec. 342). TheSecretary would be required to ensure expeditious completion of environmental and other reviewsand implement ""best management practices"" that would lead to timely action on oil and gas leasesand drilling permits (Sec. 343) . The Secretaries of the Interior and Agriculture would be required tosign an MOU on the ""timely processing"" of oil and gas lease applications, surface use plans anddrilling applications, the elimination of duplication, and ensuring consistency in applying leasestipulations (Sec. 344) . The U.S. Geological Survey would be required to estimate onshore oil and gas resources andidentify impediments and restrictions that might delay permits. The Department of Energy wouldbe required to make regular assessments of economic reserves (Sec. 345) . Compliance withExecutive Order No. 13211 (42 U.S.C. 12301 note), requiring energy impact studies, would berequired before taking action on regulations having an effect on domestic energy supply (Sec. 346) . A pilot program would be established to demonstrate energy development on federal landin accordance with the multiple-use mandate; Wyoming, Montana, Colorado, Utah, and New Mexicowould be asked to participate (Sec. 347) . The Secretary of the Interior would have 10 days afterreceiving an application for a permit to drill (APD) to notify the applicant whether the APD wascomplete. The Secretary would have 30 days after a complete APD was submitted to issue or defera permit with correcting measures. If deferred, the applicant would have a two-year window tocomplete the application, as specified by the Secretary. If the applicant met the requirements, thenthe Secretary would issue a permit within 10 days. The Secretary would deny the permit if thecriteria were not met within the two-year period (Sec. 348) . Section 349: Fair Market Rental Value Determinations for Public Land and ForestService Rights-of-Way. The Secretaries of the Interior and Agriculture would annually revise andupdate rental fees for land encumbered by linear rights-of-way to reflect fair market value. Section 350: Energy Facility Rights-of-Way and Corridors on Federal Lands. Not laterthan one year after enactment, the Secretaries of the Interior and Agriculture, in consultation withSecretaries of Defense, Commerce, and Energy and FERC, would submit to Congress a reportaddressing the location of existing rights-of-way on federal land for oil and gas pipelines and electrictransmission and distribution facilities. Section 351: Consultation Regarding Energy Rights-of-Way on Public Land. Withinsix months after enactment, the Secretaries of the Interior and Agriculture would be required to enterinto an MOU to coordinate environmental compliance and processing of rights-of-way applications. Section 352: Renewable Energy on Federal Lands. The Secretaries of Agriculture and theInterior, in consultation with others, would prepare a five-year plan for encouraging renewableenergy development, including an analysis of rights of way and projected net benefits of governmentincentives. A National Academy of Sciences study would be required within two years to assessrenewable energy on the outer continental shelf. This provision is new to the conference report. Section 353: Electricity Transmission Line Right-of-Way in Cleveland National Forestand Adjacent Public Land. The Bureau of Land Management would become the lead federalagency for environmental and other necessary reviews for a high-voltage electricity transmission lineright-of-way through the Trabuco Ranger District of the Cleveland National Forest in California. Section 354: Sense of Congress Regarding Development of Minerals Under PadreIsland National Seashore. In recognition of the split estate on Padre Island National Seashore, itwould be the sense of Congress that the federal government owns the surface rights while themineral rights are held privately and also by the state of Texas. The implications of this section areuncertain. Section 355: Encouraging Prohibition of Offshore Drilling in the Great Lakes. Statesadjacent to the Great Lakes would be encouraged to prohibit off-shore drilling in the Great Lakes. Section 356: Finger Lakes National Forest Withdrawal. This provision would withdrawall federal land within the boundary of Finger Lakes National Forest in the state of New York fromentry, appropriation, or disposal under public land laws and disposition under all laws relating to oiland gas leasing. This section was not included in the House and Senate bills. Section 357: Study on Lease Exchanges in the Rocky Mountain Front. The Secretaryof the Interior would, among other things, consider opportunities for domestic oil and gas productionthrough the exchange of non-producing leases in defined areas of the Rocky Mountain Front forother comparable tracts, consider compensation for the exchange or cancellation of a non-producinglease, and assess the economic impact on the lessees and the state under a lease exchange orcancellation. Statutory guidelines would be provided for valuation of non-producing leases. Thissection was not included in the House and Senate bills. Section 358: Federal Coalbed Methane Regulation. States on the list of ""affected states""under section 1339(b) of the Energy Policy Act of 1992 (42 U.S.C. 13368(b)) would be removed ifthey took specified actions within three years after enactment of H.R. 6 or hadpreviously taken action under section 1339(b). The list of ""affected states"" established under theEnergy Policy Act of 1992 (42 U.S.C. 13368 (b)) includes West Virginia, Pennsylvania, Kentucky,Ohio, Tennessee, Indiana, and Illinois. These states are on the list as a result of coalbed methane(CBM) ownership disputes, impediments to development, lack of a regulatory framework toencourage CBM development in the state, and no current extensive development of CBM. A statemay be removed from the list through a petitioning process initiated by the governor of that state. This provision was not included in the House and Senate bills. Section 359: Livingston Parish Mineral Rights Transfer. Section 102 of P.L. 102-562 is amended by striking the ""Conveyance of Lands"" provision, which maintains the reservation ofmineral rights held by the United States in specific areas of Livingston Parish, Louisiana. Thisprovision was not included in the House and Senate bills. This Subtitle would facilitate the construction of a pipeline to transport natural gas from theAlaskan North Slope (ANS) to the lower 48 states. Section 371: Short Title. Subtitle D would be cited as the Alaska Natural Gas Pipeline Act. Section 372: Definitions. ANS natural gas would be defined as lying north of 64 degreesnorth latitude; the Transportation Project would be defined as delivering this gas to theAlaska-Canada border by a route heading south from Prudhoe Bay. Section 373: Issuance of Certificate of Public Convenience and Necessity. FERC wouldbe directed to issue a certificate of convenience and necessity for an applicant seeking to build thispipeline under the terms the Natural Gas Act alone, presuming both a public need and that sufficienttransport capacity existed at the Canadian end of the pipe to deliver the gas to U.S. markets. Anexpedited hearing process would be provided for, directing FERC to issue a certificate within 60days after the issuance of a final environmental impact statement. Section 373 (d) would prohibit construction of a pipeline via a northerly route to Canadatransiting under the Beaufort Sea. This would preclude a proposal that was floated a few years agobut garnered little support. In order to elicit interest in the pipeline project, an ""open season"" for potential customerswould be held 120 days after the energy bill was enacted. An open season is a formalized proceedingin which the public demand for a project is gauged, giving an indication of the capacity that mightbe called for in an Alaska Gas Transport project. An assessment of Alaska in-state gas needs would also be made under this section, andaccess to the state's royalty gas for consumption within Alaska would be facilitated. Section 374: Environmental Reviews. This section would fast-track NEPA compliance bythe proposed Alaska gas pipeline. FERC would be designated as the lead agency under NEPA,setting the schedule and coordinating environmental reviews, rather than having each federal agencywith jurisdiction over an aspect of the project proceed separately with the review process. TheCommission would be responsible for consolidating the environmental reviews of all other federalagencies into one environmental impact statement (EIS), which would satisfy all NEPA requirementsfor the project. The section would require FERC to issue a draft EIS within one year after a projectapplication date, and a final EIS within 180 days after issuing the draft, unless there were delays ""forgood cause."" Section 375: Pipeline Expansion. This section would provide FERC with authority to orderthe capacity of the project to be expanded -- after holding a hearing -- on the basis of one or morerequests for additional capacity. The applicant would have to make a firm commitment for transportservices. The hearing would determine that tariffs were non-discriminatory, the expansion would notadversely impact other shippers, and that adequate downstream facilities existed that would deal withadditional throughput. Section 376: Federal Coordinator. An independent executive branch Office of the FederalCoordinator for Alaska Natural Gas Transportation Projects would be established, headed by apresidential appointee who would be confirmed by the Senate. The Secretary of Energy would holdthese authorities for up to 18 months while a coordinator was being put in place. The coordinatorwould be responsible for expeditious discharge of other agencies' responsibilities and ensuring thatthe provisions of the Alaska gas subtitle of this bill were complied with. The coordinator would not have authority to override or amend FERC decisions. He or shewould enter into an agreement with the state to jointly monitor Transportation System construction,with the state and federal governments having primary responsibility for sections of the projectcrossing their respective lands. Section 377: Judicial Review. The U.S. Court of Appeals for the District of Columbiawould be designated as having original and exclusive jurisdiction over disputes arising from thisproposed legislation. Claims arising under this subtitle would have to be brought not later than 60days after the action giving rise to the claim, and the court would be directed to give them expeditedconsideration. Section 378: State Jurisdiction Over In-State Delivery of Natural Gas. Were the Alaskapipeline project to be constructed, the state could benefit by using it as a backbone system fordistributing gas. This section would provide that the state hold jurisdiction over intrastatedistribution pipelines that might be supplied by the Transportation Project, ensuring that statepipelines and natural gas would not fall under FERC jurisdiction. Sec. 338 notes that FERC wouldhave tariff jurisdiction of the Transportation Project, and that the state should coordinate regardingrates for in-state consumers. Section 379: Study of Alternative Means of Construction. Were no application forTransportation Project construction to be filed within 18 months of the enactment of this act, theSecretary of Energy would be required to conduct a study of alternative construction approaches. Thebill calls for consideration of such factors as establishing a federal corporation, joint federal andprivate-sector ownership, and securing alternative means of financing. The Secretary would reportto Congress on the study's findings and make recommendations on how the project might beaccomplished. Section 380: Clarification of ANGTA Status and Authorities. The bill would not changeanything previously done under the Alaska Natural Gas Transportation Act of 1976 (ANGTA, 15U.S.C. 719g), but would provide authority for responsible agencies to update decisions made in prioryears to meet current project requirements. The project sponsor could be required to updateenvironmental impact studies and analyses and compliance plans. Section 381: Sense of Congress Concerning Use of Steel Manufactured in NorthAmerica and Negotiation of a Project Labor Agreement. The project sponsors should make""every effort"" to use steel manufactured in North America and to negotiate a project labor agreement. Section 382: Sense of Congress and Study Concerning Participation by Small BusinessConcerns. Were the project to go forward, it would be the sense of Congress that small businesses-- as defined in the Small Business Act (15 U.S.C. 632(a)) -- should participate to the maximum. TheComptroller General would be directed to study the extent of possible participation and report toCongress not later than one year after enactment. An update every five years would also be calledfor. Section 383: Alaska Pipeline Construction Training Program. This section wouldauthorize grants to recruit and train adult workers in Alaska to work on the gas transport project. Itwould call for the Governor of Alaska to request funds after certifying that the constructions workwas reasonably expected to begin within two years. Section 384: Sense of Congress Concerning Natural Gas Demand. This section wouldexpress congressional concern that the demand for natural gas will outstrip supplies from NorthAmerican producing areas that already have pipeline connections. It would express the belief thatboth Alaskan and Canadian resources are needed to meet future demand, and that such demandwould be strong enough that historic Canadian and lower 48 U.S. producers would not be displacedin the marketplace. Section 385: Sense of Congress Concerning Alaskan Ownership. This section wouldconvey the sense of Congress that it is in the economic interest of Alaska to have local ownershipof a share of the pipeline, and that project sponsors would be encouraged to work with interestedlocal parties seeking to participate. Section 386: Loan Guarantees. The bill would grant authority to the Secretary of Energyto issue ""Federal guarantee instruments,"" providing loan guaranties to pipeline certificate holders.The instruments would expire two years after the certificate had been issued, meaning that theproject sponsor would have to be in the project financing stage by that time. The loan or debtobligation would have to be issued by a qualified lender, the loan could not be for more than 30years, and the total amount of the guaranteed debt obligations would be limited to $18 billion,adjusted for inflation from the date of enactment. The guaranteed loan could cover all legitimatecomponents of the transport system. The bill also would authorize the Secretary to extend these loan guarantees to the Canadiansegment of the Alaska gas transportation project. Current Law. The basic law addressing the certification of pipelines is the Natural Gas Act,which gives FERC broad-based authority to certificate pipelines, facilitating their construction andensuring that their rates and tariffs are ""just and reasonable."" In addition to the NGA, the AlaskaNatural Gas Transportation Act of 1976 was enacted specifically to pave the way for the projectvisualized in H.R. 6 . Under ANGTA, a presidential finding specified the pipeline routethat is the focal point of Subtitle D. Policy Context. Significant amounts of proven ANS gas reserves lie in and around thePrudhoe Bay field and remain there because a transportation system has not been developed, despiteenactment of ANGTA in 1976. Demand for natural gas in the lower 48 states has grown in the recentpast, and supply has become tight, resulting in steadily increasing average prices and disruptive pricevolatility during high-demand winter months. While an Alaskan gas pipeline is many years off --even if construction began today -- the current supply-demand situation has become a source oflonger-term concern among policymakers. Proponents of the loan guarantees contend that the inherent risk is so high in building anAlaska pipeline, at an estimated cost of $20 billion, that it could not be financed by conventionalmeans. The conference bill's loan guarantees would offer those providing the project's capital someassurance that a certain amount of their investment would be repaid, although exposing the federalgovernment to potential losses. Other proposals have utilized commodity price guarantees or acombination of loan and price guarantees. Sections 401-404: Clean Coal Power Initiative. The Clean Coal Power Initiative (CCPI)is in its third year of funding under a 10-year, $2 billion program outlined by the BushAdministration. According to DOE, the program supports cost-shared projects with the privatesector to demonstrate new technologies that could boost the efficiency and reduce emissions fromcoal-fired power plants. Current Law. CCPI does not currently have a specific authorization, although it has beenfunded through the annual Interior and Related Agencies Appropriations bill. The programsupersedes the Clean Coal Technology Program, which has completed most of its projects and hasbeen subject to rescissions and deferrals since the mid-1990s. Conference Agreement. Funding for CCPI would be authorized for $200 million for eachyear from FY2004-FY2012 (Sec. 401) . The technical criteria would be established for coal-basedgasification and other projects. The federal share of financing for each clean coal project would notexceed 50% (Sec. 402) . A report on the projects' status and technical milestones would be submittedafter the first year and every two years by the Secretary of Energy to various congressionalcommittees (Sec. 403) . The program would include grants to universities to establish Centers ofExcellence for energy systems of the future (Sec. 404) . Policy Context. A key ingredient of President Bush's May 2001 National Energy Policy isto bolster U.S. energy supply. One of its goals is to use coal more efficiently, as coal is an abundantnational resource. The Administration contends that new technologies could cost-effectively reduceemissions from coal-fired power plants and overcome barriers to expanded coal use. Sections 411-416: Clean Power Projects. The Secretary of Energy would be authorized toprovide a $125 million loan to an experimental clean coal power plant in Healy, Alaska (Sec. 411) . Loan guarantees would be authorized for a power plant using integrated combined-cycle (IGCC)technology in a deregulated market and receiving no ratepayer subsidy (Sec. 412) . A power plantusing IGCC technology in a taconite-producing region of the United States could receive loanguarantees (Sec. 413) . Loan guarantees would be available for at least one petro-coke gasificationpolygeneration project, involving co-production of electricity and fuels (Sec. 414) . Loan guaranteeswould be authorized for an IGCC project using low-Btu coal that would be combined withrenewable energy sources, offer the potential to sequester carbon dioxide emissions, and providehydrogen for fuel-cell demonstrations. The facility would be located in the Upper Great Plains, andits goal would be to provide at least 200 megawatts of power at competitive rates (Sec. 415) . TheSecretary of Energy would be directed to use $5 million of appropriated funds to begin a projectmanaged by the DOE Chicago Operations Office to demonstrate high-energy electron scrubbingtechnology for high-sulfur coal emissions (Sec. 416) . Sections 421-427: Federal Coal Leases. This subtitle would modify federal coal leasingprocedures to encourage greater coal production on federal lands. Issues raised by these provisionsinclude their impact on regional competition and returns to the U.S. Treasury. Current Law. Under the Mineral Leasing Act of 1920 (30 U.S.C. 203), modifications to anexisting coal lease shall not exceed 160 acres or add acreage larger than that in the original lease.Coal leases are subject to diligent development requirements, but the Secretary of the Interior maysuspend the condition upon payment of advance royalties. Advance royalties are computed on a fixedproduction reserve ratio, and the aggregate number of years advance royalties may be accepted inlieu of production is 10. An operation and reclamation plan must be submitted within three yearsafter a lease is issued under the Leasing Act (30 U.S.C. 207). Financial assurance is required toguarantee payment of bonus bid installments (30 U.S.C. 201 (a)). Conference Agreement. The conference agreement would repeal the 160 acre limitation oncoal lease modifications. The total area added to an existing coal lease through a modification couldnot exceed 1,280 acres or add acreage larger than the original lease (Sec. 421) . Criteria would beestablished for extending the mine-out period of a coal lease beyond 40 years (Sec. 422) . TheSecretary may upon payment of an advance royalty, suspend a coal lessee's requirement forcontinuous operation. Advance royalties would be based on the average price of coal sold on the spotmarket from the same region, and the aggregate number of years advance royalties could be acceptedin lieu of production would be 20 (Sec. 423) . The current three-year deadline for submission of acoal lease operation and reclamation plan would be repealed (Sec. 424) . The financial surety bondor other financial guarantee for a bonus bid would no longer be required (Sec. 425) . The Secretaryof the Interior, in consultation with the Secretaries of Agriculture and Energy, would be required toassess coal on public lands, including low-sulfur coal and various impediments to developing suchresources (Sec. 426) . Amendments made under this provision would apply to any coal lease issuedbefore, on, or after the date of enactment (Sec. 427) . Section 441: Clean Air Coal Program. This section would amend the Energy Policy Actof 1992 with the addition of a clean air coal program to promote increased use of coal, acceptanceof new clean coal technologies, and advance deployment of pollution control equipment to meet theClean Air Act (42 U.S.C. 7402 et seq.). A total of $500 million over FY2005-FY2009 would be authorized for pollution controlprojects to control mercury, nitrogen dioxide, sulfur dioxide emissions, particulate matter, or morethan one pollutant; and allow use of the waste byproducts. Additional authorizations totaling $1.5billion over FY2006-FY2012 would be provided for projects using coal-based electrical generationequipment and processes, and associated environmental control equipment. Project selection criteria would be based on significantly improving air quality, replacing lessefficient units, and improving thermal efficiency. Up to 25% of projects would be cogeneration orother gasification projects. At least 25% of the projects would be solely for electrical generation,with priority for those generating less than 600 MW. Federal loans or loan guarantees would notexceed 30% of the total funds obligated during any fiscal year. The federal share of projects fundedwould not exceed 50%. No technology funded by the program, or level of emissions reduction achieved by fundedprojects, would be considered adequately demonstrated for purposes of Sections 111, 169, or 171of the Clean Air Act. Section 501: Short Title. The ""Indian Tribal Energy Development and Self-DeterminationAct of 2003."" Section 502: Office of Indian Energy Policy and Programs. Title II of the Departmentof Energy Organization Act (42 U.S.C. 7131 et. seq.) would be amended to create the Office ofIndian Energy Policy and Programs at the Department of Energy. Section 503: Indian Energy. Title 26 the Energy Policy Act of 1992 (25 U.S.C. 3501)would be replaced by this section, which outlines procedures whereby Indian tribes would be ableto develop and manage the energy resources located on, and rights-of-way through, tribal land. Within a year of enactment of the bill, the Department of the Interior (DOI) would issue regulationson the requirements for approval of tribal energy resource agreements. Under their own tribal energyresource agreements as approved by DOI, Indian tribes would be able to enter into leases or businessagreements for energy development and grant rights-of-way over tribal land for pipelines or electriclines. Assistance for tribal energy development would be provided through DOI by grants andlow-interest loans and through DOE by grants and loan guarantees. Federal agencies could givepreference to Indian energy when purchasing energy products and byproducts. DOI would be required to undertake a review and make recommendations regarding tribalopportunities under the Indian Mineral Development Act of 1982 (25 U.S.C. 2101 et. seq.). TheBonneville Power Administration and Western Area Power Administration would be authorized toassist in developing distribution systems that provide power to Indian tribes using the federaltransmission system. DOE, in coordination with the Army and DOI, would conduct a study of thefeasibility of obtaining a marketable, steady electricity source from wind energy generated on triballands connected with hydropower generated by the U.S. Army Corp of Engineers at Missouri Riverpowerplants. The language of the conference agreement combines and expands on both the House- andSenate-passed bills with regard to Indian Energy. Section 504: Four Corners Transmission Line Project. The Dine Power Authority, anenterprise of the Navajo nation, would be eligible to receive grants and other assistance to developa transmission line from the Four Corners Area to southern Nevada, including related generationfacilities. Section 505: Energy Efficiency in Federally Assisted Housing. The Department ofHousing and Urban Development (HUD) would be required to promote energy efficiency and energyconservation in federally assisted housing located on Indian land. This provision would expandcurrent law regarding affordable housing development for Native Americans to include use ofenergy-efficient technologies and innovations. (7) Section 506: Consultation with Indian Tribes. The Secretaries of Energy and of theInterior would be required to consult with Indian tribes in carrying out this title. Sections 601-611: Price-Anderson Nuclear Liability Coverage. The Price-AndersonAct, (8) which addressesliability for damages to the general public from nuclear incidents, would be extended through 2023. The Price-Anderson liability system was up for reauthorization on August 1, 2002, and it wasextended for commercial nuclear reactors through December 31, 2003, by the FY2003 omnibuscontinuing resolution ( P.L. 108-7 ). Even without an extension, existing reactors will continue tooperate under the current Price-Anderson liability system, but any new reactors would not becovered. Price-Anderson coverage for DOE nuclear contractors was extended through December 31,2004, by the National Defense Authorization Act for FY2003 ( P.L. 107-314 ). Current Law. Under Price-Anderson, the owners of commercial reactors must assume allliability for nuclear damages awarded to the public by the court system, and they must waive mostof their legal defenses following a severe radioactive release (""extraordinary nuclear occurrence""). To pay any such damages, each licensed reactor must carry financial protection in the amount of themaximum liability insurance available, which was increased by the insurance industry from $200million to $300 million on January 1, 2003. Any damages exceeding that amount are to be assessedequally against all covered commercial reactors, up to $95.8 million per reactor (most recentlyadjusted for inflation on August 20, 2003). Those assessments -- called ""retrospective premiums""-- would be paid at an annual rate of no more than $10 million per reactor, to limit the potentialfinancial burden on reactor owners following a major accident. Including two that are not operating,105 commercial reactors are currently covered by the Price-Anderson retrospective premiumrequirement. Funding for public compensation following a major nuclear incident, therefore, wouldinclude the $300 million in insurance coverage carried by the reactor that suffered the incident, plusthe $95.8 million in retrospective premiums from each of the 105 currently covered reactors, totaling$10.4 billion. On top of those payments, a 5% surcharge may also be imposed, raising the totalper-reactor retrospective premium to $100.6 million and the total potential compensation for eachincident to about $10.9 billion. Under Price-Anderson, the nuclear industry's liability for an incidentis capped at that amount, which varies depending on the number of covered reactors, the amount ofavailable insurance, and an inflation adjustment that is made every five years. Payment of anydamages above that liability limit would require congressional approval under special proceduresin the act. The Price-Anderson Act also covers contractors who operate hazardous DOE nuclearfacilities. The liability limit for DOE contractors is the same as for commercial reactors, excludingthe 5% surcharge, except when the limit for commercial reactors drops because of a decline in thenumber of covered reactors. Because the most recent adjustments have raised the commercialreactor liability limit to a record high, the liability limit for DOE contractors is currently the sameas the commercial limit, minus the surcharge, or $10.4 billion. Price-Anderson authorizes DOE toindemnify its contractors for the entire amount, so that damage payments for nuclear incidents atDOE facilities would ultimately come from the U.S. Treasury. However, the law also allows DOEto fine its contractors for safety violations, and contractor employees and directors can face criminalpenalties for ""knowingly and willfully"" violating nuclear safety rules. However, Section 234A of theAtomic Energy Act specifically exempts seven non-profit DOE contractors and their subcontractors. Under the same section, DOE automatically remits any civil penalties imposed on non-profiteducational institutions serving as DOE contractors. Conference Agreement. Price-Anderson liability coverage for commercial reactors and forDOE contractors would be extended through December 31, 2023 (Sec. 602) . The total retrospectivepremium for each reactor would be set at the current level of $95.8 million and the limit onper-reactor annual payments raised to $15 million (Sec. 603) , with both to be adjusted for inflationevery five years (Sec. 607) . For the purposes of those payment limits, a nuclear plant consisting ofmultiple small reactors (100-300 megawatts, up to a total of 1,300 megawatts) would be considereda single reactor (Sec. 608) . Therefore, a power plant with six 120-megawatt modular reactors wouldbe liable for retrospective premiums of up to $95.8 million, rather than $574.8 million. The liabilitylimit on DOE contractors would be set at $10 billion per accident, also to be adjusted for inflation,under the conference agreement (Sec. 604) . The liability limit and maximum indemnification for DOE contractors for nuclear incidentsoutside the United States would be raised from $100 million to $500 million (Sec. 605) . However,Price-Anderson indemnification would be prohibited for contracts related to nuclear facilities incountries found to sponsor terrorism (Sec. 610) . None of the increased liability limits would applyto nuclear incidents taking place before the amendments are enacted (Sec. 609) . The NuclearRegulatory Commission (NRC) and DOE would have to report to Congress by the end of 2019 onthe need for further Price-Anderson extensions and modifications (Sec. 606) . For future contracts, the conference agreement would eliminate the civil penalty exemptionfor nuclear safety violations by the seven non-profit contractors listed in current law. DOE'sauthority to automatically remit penalties imposed on all non-profit educational institutions servingas contractors would also be repealed. However, the bill would limit the civil penalties against anon-profit contractor to the amount of management fees received under that contract (Sec. 611) . The House-passed version of H.R. 6 would have authorized the federalgovernment to sue DOE contractors to recover at least some of the compensation that thegovernment had paid for any accident caused by intentional DOE contractor managementmisconduct. Such cost recovery would have been limited to the amount of the contractor's profitunder the contract involved, and no recovery would have been allowed from nonprofit contractors. However, the conference agreement does not include that provision. Most of the major provisionsin the conference agreement are similar to provisions in both the House and Senate versions. Policy Context. The Price-Anderson Act's limits on liability were crucial in establishing thecommercial nuclear power industry in the 1950s. Supporters of the Price-Anderson system contendthat it has worked well since that time in ensuring that nuclear accident victims would have a securesource of compensation, at little cost to the taxpayer. However, opponents contend thatPrice-Anderson subsidizes the nuclear power industry by protecting it from some of the financialconsequences of the most severe conceivable accidents. Because no new U.S. reactors are currently planned, missing the deadline for extensionwould have little short-term effect on the nuclear power industry. However, any new DOE contractssigned during Price-Anderson expiration would have to use alternate indemnification authority. Section 621: Commercial Reactor License Period. The initial 40-year period for acommercial nuclear reactor license would begin when NRC authorized the reactor to commenceoperation. Under current law (Atomic Energy Act sections 103 and 185), the 40-year period maystart before construction of a reactor begins, when a combined construction permit and operatinglicense is issued. The conference provision was taken from the House bill, but the Senate versionincluded similar language. Section 622: NRC Training and Fellowship Program. Funding would be authorized forNRC to conduct a training and fellowship program to develop critical nuclear safety regulatory skills. This is nearly identical to a House provision. Section 623: Cost Recovery From Government Agencies. NRC would be authorized tocharge cost-based fees for all services rendered to other federal agencies. Such authority is limitedunder current law (Atomic Energy Act, Section 161 w.) This provision is identical to language inthe House bill. Section 624: Elimination of Pension Offset for Key NRC Personnel. When NRC has acritical need for the skills of a retired employee, NRC could hire the retiree as a contractor andexempt him or her from the annuity reductions that would otherwise apply. This is identical tolanguage in the House bill. Section 625: Antitrust Review Suspension. NRC would no longer have to submit nuclearreactor license applications to the Attorney General for antitrust reviews, as currently required byAtomic Energy Act, Section 105 c. The Senate bill would have replaced the existing antitrust reviewrequirement with modified procedures for new reactor applications; the House version had noprovision. Section 626: Decommissioning Fund Protection. NRC would be explicitly authorized toissue regulations ensuring that funds collected to decommission nuclear power plants would not beused for other purposes. This provision is particularly aimed at cases in which an original nuclearpower plant owner has sold the plant but retained control over decommissioning funds collectedbefore the ownership transfer. A similar but more detailed provision was included in the Senate bill. Section 627: Limitation on DOE Legal Fee Reimbursement. Except as required byexisting contracts, DOE would be prohibited from reimbursing its contractors for legal expensesincurred in defending against ""whistleblower"" complaints that are ultimately upheld. This provisionwas taken from the House bill. Section 628: Reactor Decommissioning Pilot Program. A DOE program would beestablished to decommission the sodium-cooled test reactor in northwest Arkansas. This provisionwas taken from the Senate bill. Section 629: Feasibility Study for Commercial Reactors at DOE Sites. The Secretary ofEnergy would be required to submit a study to Congress on the feasibility of developing commercialnuclear power plants at existing DOE sites. This provision was taken from the House bill. Section 630: Government Uranium Sales. With certain exceptions, DOE uranium saleswould be restricted to 3 million pounds per year from FY2004-FY2009, 5 million pounds per yearin FY2010-FY2011, 7 million pounds per year in FY2012, and 10 million pounds per year thereafter. Up to 21 million pounds could be transferred to the uranium enrichment company USEC Inc., aprivatized former government corporation. Similar provisions were included in both the House andSenate bills. Section 631: Uranium Mining Research and Development. Funding would be authorizedfor a cost-shared research and development program by DOE and domestic uranium producers onin-situ leaching mining technologies and related environmental restoration technologies. Thisprovision was taken from the House bill. Section 632: Whistleblower Protection. Existing whistleblower protections for employeesof nuclear power plants and other NRC licensees and employees of DOE contractors would beextended to employees of NRC contractors. An employee whose whistleblower retaliationcomplaint did not receive a final decision by the Secretary of Labor within 540 days could take thecase to federal court. The House bill would have further extended whistleblower protection to DOEand NRC employees and given the Secretary of Labor 180 days for a decision; the Senate bill hadno related provision. Section 633: Uranium Exports for Medical Isotope Production. Highly enriched uranium(HEU) could be exported to Canada, Belgium, France, Germany, and the Netherlands for productionof medical isotopes in nuclear reactors. Those countries would be exempt from existingrequirements (under Section 134 of the Atomic Energy Act) that they agree to switch to low-enricheduranium (LEU) as soon as possible and that LEU fuel for their reactors be under active development. Instead, those countries would have to agree to convert to suitable LEU fuel when it becameavailable. The exemption in the conference bill would terminate upon certification by the Secretaryof Energy that U.S. medical isotope demand could be reliably and economically met with productionfacilities that do not use HEU. The conference provision is based on language in the House bill,which would have allowed NRC to exempt additional countries from the HEU export restrictionsand did not include the termination procedure. The current HEU export restrictions are intended tospur foreign cooperation with U.S. efforts to convert all HEU reactors to LEU, but supporters of theexemption contend that the restrictions could disrupt the supply of medical isotopes produced inforeign HEU reactors. Section 634: Fernald Byproduct Material. DOE-managed material in the concrete silosat the Fernald uranium processing facility would be considered byproduct material (as defined bysection 11 e.(2) of the Atomic Energy Act of 1954 (42 U.S.C. 2014(e)(2)). DOE would dispose ofthe material in an NRC- or state-regulated facility. This section is new to the conference bill. Section 635: Safe Disposal of Greater-than-Class-C Radioactive Waste. DOE woulddesignate an office with the responsibility for developing a comprehensive plan for permanentdisposal of all low-level radioactive waste with concentrations of radionuclides that exceed the limitsestablished by the NRC for Class C radioactive waste. The plan would include developing a newfacility or use of an existing facility for disposal. This section is new to the conference bill. Section 636: Prohibition on Nuclear Exports to Terrorism Sponsors. Exports of nuclearmaterials, equipment, and sensitive technology would be prohibited to any country identified by theSecretary of State as a sponsor of terrorism. The President could waive the export restriction undercertain conditions. This provision, without the waiver, is similar to language in the House bill. It isintended to block implementation of a 1994 agreement under which North Korea was to receive aU.S.-designed nuclear power plant in return for abandoning its nuclear weapons program. Section 637: Uranium Enrichment Facilities. NRC would be required to issue a finaldecision on a license to build and operate a uranium enrichment facility within two years after anapplication is submitted. Various procedural requirements would be established to ensure that thetwo-year licensing schedule could be met. DOE would be required to take title to and possessionof any depleted uranium hexafluoride resulting from the enrichment process; the cost assessed byDOE could not exceed the amount assessed to USEC Inc., the sole existing U.S. enrichment firm. Residual material from depleted uranium would be considered low-level radioactive waste. Aproposed uranium enrichment plant in New Mexico could be the first to take advantage of thissection, which was not in the House and Senate bills. Section 638: National Uranium Stockpile. The Secretary of Energy would be authorizedto create a national low-enriched uranium stockpile. This provision is new to the conference bill. Sections 651-655: Idaho Hydrogen Production Reactor. DOE would be authorized todesign, construct, and operate an advanced hydrogen-producing nuclear reactor (Secs. 651-652) . Theproject would be managed by the DOE Office of Nuclear Energy, Science, and Technology, and thereactor would be located at the Idaho National Engineering and Environmental Laboratory (Sec.653) . Among other requirements, the project should begin producing hydrogen or electricity by 2010unless the Secretary of Energy finds that goal infeasible (Sec. 654) . Funding for the program wouldbe authorized at $635 million through FY2008, plus $500 million for construction (Sec. 655) . Thisprovision is similar to language in S. 14 , but there was no similar provision in the Houseand Senate versions of H.R. 6 . Section 661: Nuclear Facility Threats. In consultation with NRC and other appropriateagencies, the President would be required to identify types of security threats at nuclear facilities. The President would have to issue reports on the identified threats and on actions taken or to betaken to address the threats. NRC would be authorized to revise its regulations based on thePresident's threat-identification report. NRC would be required to conduct periodic force-on-forceexercises to test nuclear facility security. NRC would be authorized to issue regulations to protectinformation about nuclear facility security, and would be required to assign a security coordinator to each NRC region. This section is similar to language in the House bill. Section 662: Fingerprinting for Criminal Background Checks. The existing requirementthat individuals be fingerprinted for criminal background checks before receiving unescorted accessto nuclear power plants (Atomic Energy Act, Section 149) would be extended to individuals withunescorted access to any radioactive material or property that could pose a health or security threat. Other biometric methods could be used instead of fingerprinting. This section was not included inthe House and Senate bills. Section 663: Use of Firearms by Nuclear Licensees. NRC would be authorized to allowthe use of firearms by security personnel at nuclear power plants and other facilities licensed orregulated by NRC. Federal law currently authorizes NRC employees and contractors to use firearms,but not employees or contractors of nuclear licensees (Atomic Energy Act, Section 161 k.). Thisprovision would counter some state laws that preclude private guard forces from utilizing someweapons. The House version of H.R. 6 had included similar firearms language but hadalso provided arrest authority. Section 664: Unauthorized Introduction of Dangerous Weapons. Existing NRC controlson the entry of dangerous weapons or materials into Commission facilities (Atomic Energy Act,Section 229 a.) would be extended to commercial nuclear power plants and other NRC-regulatedfacilities. This provision was taken from the House bill. Section 665: Sabotage of Nuclear Facilities or Fuel. Maximum penalties for sabotage oflicensed nuclear facilities or materials (Atomic Energy Act, Section 236 a.) would be increased from$10,000 and 10 years in prison to $1 million and life imprisonment without parole. The languagewould clarify that the penalties could apply to facilities ""certified"" as well as ""licensed"" by NRC, andalso to sabotage of facilities under construction. This provision was taken from the House bill. Section 666: Secure Transfer of Nuclear Materials. Nuclear materials transferred orreceived in the United States pursuant to an import or export license would have to be accompaniedby a detailed manifest. Every worker involved in such shipments would have to undergo a federalsecurity background check. Language in the House bill would also have imposed those requirementson nuclear materials transferred from any NRC- or state-licensed facility. Section 667: Department of Homeland Security Consultation. Before issuing a licensefor a nuclear power plant, NRC would have to consult with the Department of Homeland Securityabout the vulnerability of the proposed plant location to terrorist attack. A similar provision wasincluded in the House bill. Under current law, most other NRC costs must be recovered throughlicensee fees. Appropriation of such sums as necessary to carry out this subtitle would be authorized. This section is new to the conference report. The sections of this subtitle refer to alternative fuel and vehicle purchase requirements underthe Energy Policy and Conservation Act (EPCA) ( P.L. 94-163 ) and the Energy Policy Act of 1992(EPAct, P.L. 102-486 ). Various requirements apply to federal vehicle fleets, as well as state fleetsand fleets operated by alternative fuel providers. Section 701: Use of Alternative Fuels by Dual-Fueled Vehicles. Section 400AA of EPCAwould be amended to require that all federal agencies operate dual-fueled vehicles on alternativefuels or petition the Secretary of Energy for a waiver from the requirement. Under current law,agencies are not required to file a petition to be exempted from the requirement. A dual-fuel vehicleis one that can be operated on either an alternative fuel (e.g., ethanol or natural gas) or a conventionalfuel (e.g., gasoline). Currently, most federally owned dual-fuel vehicles are operated on gasoline asopposed to alternative fuel. This provision is similar to a provision in the Senate version of the bill;the House version contained no similar provision. Section 702: Neighborhood Electric Vehicles. Section 301 of EPAct would be amendedto allow neighborhood electric vehicles to qualify as alternative fuel vehicles for fleet purchaserequirements under EPAct. A neighborhood electric vehicle is a small, low-speed, zero-emissionvehicle capable of operating on streets but not highways. This provision is similar to a provision inthe Senate version of the bill; the House version contained no similar provision. Section 703: Credits for Medium and Heavy-Duty Dedicated Vehicles. Section 508 ofEPAct would be amended to allow vehicle fleets operated by states and alternative fuel providersto claim extra credits for purchasing dedicated (operating solely on alternative fuels) medium- andheavy-duty vehicles in lieu of light-duty vehicles. The purchase of a dedicated medium-duty vehiclewould count as two light-duty vehicles in meeting EPAct fleet requirements; a heavy-duty vehiclewould count as three. Currently, Executive Order 13149 grants federal fleets (and only federalfleets) three credits for the purchase of a dedicated medium-duty vehicle, and four credits for thepurchase of a dedicated heavy-duty vehicle. The House and Senate versions of the bill contained nosimilar provision. Section 704: Incremental Cost Allocation. Section 303(c) of EPAct allows federalagencies to allocate the incremental cost of required alternative fuel vehicles across the wholevehicle fleet. The conference report would require agencies to do so. This provision is similar toa provision in the House version of H.R. 6 ; the Senate version contained no similarprovision. Section 705: Alternative Compliance and Flexibility. The conference report would amendEPAct to allow new ways for fleets to comply with the vehicle purchase requirements. First, undersubsection (a), vehicle fleets operated by states and fuel providers would be allowed to petition theSecretary of Energy for a waiver from the purchase requirements if they met certain criteria. Thefleet would be required to develop an alternative plan to reduce petroleum consumption. Thealternative plan must result in a reduction in petroleum consumption equal to or greater than if thefleet met its purchase requirement and fueled 100% of its alternative fuel vehicles on alternative fuel100% of the time. Second, subsection (b) would allow state and fuel provider fleets to generate vehicle purchasecredits through the purchase of hybrid-electric vehicles. Credits would be based on the performanceof the hybrid system; the purchase of one hybrid vehicle would qualify for between one-quarter ofa credit and one full credit. Under current law, hybrid vehicles do not qualify as alternative fuelvehicles because their primary fuel is gasoline. In addition, subsection (b) would allow fleets tocount investments in alternative fuel vehicle infrastructure toward vehicle purchase requirements. Each $25,000 in investments would qualify for one credit. Third, subsection (c) would amend the definition of alternative fuel to include leasecondensate (liquids recovered from natural gas separation) and fuels derived from lease condensate. Fleets could generate one vehicle purchase credit for the use of a certain volume (to be determinedby the Secretary of Energy) of lease condensate fuel in medium- and heavy-duty vehicles. Thisprovision is similar to the existing credit structure for the use of biodiesel. This section is significantly different from the House and Senate versions of H.R. 6 . Neither version provided for alternative compliance methods. Further, neitherversion permitted credits for the use of lease condensate fuel. However, the Senate version providedcredits for the purchase of hybrid vehicles and both versions provided credits for investment inalternative fuel infrastructure. Section 706: Review of Energy Policy Act of 1992 Programs. The Secretary of Energywould be required to conduct a study on the effectiveness of the alternative fuel vehicle programsunder EPAct. Specifically, the Secretary would be required to assess the effects on vehicletechnology, availability, and cost. Section 707: Report Concerning Compliance with Alternative Fuel Vehicle PurchasingRequirements. Each federal agency is required to report annually (through 2012) to Congress onits compliance with EPAct vehicle purchase requirements. The conference report would extend therequirement through 2018. Section 711: Hybrid Vehicles. Section 711 would require the Secretary of Energy toaccelerate research on technologies for hybrid vehicles. No new funds would be authorized. Sections 721-724: Advanced Vehicles. The Secretary of Energy would be authorized toprovide grants to state governments, local governments, and metropolitan transit authorities for thepurchase of alternative fuel, hybrid, fuel cell, and ultra-low sulfur diesel vehicles (defined in Sec.721 ), and the infrastructure to support them. The program would be administered through the CleanCities Program. Grants would be capped at $20 million per applicant. Between 20% and 25% ofall grant funds would be used for ultra-low sulfur diesel vehicles (Sec. 722) . The Secretary wouldbe required to submit reports to Congress identifying grant recipients and evaluating the program'seffectiveness (Sec. 723) . $200 million total would be authorized for the grant program (Sec. 724) . This provision is similar to a provision in the House version of H.R. 6 ; the Senate hadno similar provision. Section 731: Fuel Cell Transit Bus Demonstration. The Secretary of Energy would berequired to establish a program to demonstrate up to 25 fuel cell transit buses in various localities.$10 million annually would be authorized for FY2004 through FY2008. This provision is similarto a provision in the House version of H.R. 6 , but the House version would haveauthorized $40 million for the project. The Senate version contained no similar provision. Sections 741-744: Clean School Buses. A pilot program administered by theEnvironmental Protection Agency would be established to provide grants to local governments andcontractors that provide school bus service for public school systems. Grants would be provided toaid in the purchase of alternative fuel and advanced diesel buses (as defined in Sec. 741 ), and theinfrastructure necessary to support them. A total of $200 million would be authorized for FY2005through FY2007, and a maximum of 30% of the grant funds could be used to purchase advanceddiesel buses (Sec. 742) . A pilot program would also be established to provide grants for thedevelopment and application of retrofit technologies for diesel school buses. A total of $100 millionwould be authorized for FY2005 through FY2007 (Sec. 743) . In addition, a pilot program wouldbe established for the development and demonstration of fuel cell school buses. A total of $25million would be authorized for FY2004 through FY2006 (Sec. 744) . This subtitle is similar to provisions in both the House and Senate versions of H.R. 6 . However, the total authorized funding in the conference agreement ($325million) is greater than either the House version ($300 million) or the Senate version ($210 million). Section 751: Railroad Efficiency. A public-private research partnership would beestablished for the development and demonstration of locomotive engines that increase fueleconomy, reduce emissions, and lower costs. A total of $110 million would be authorized forFY2005 through FY2007. This provision is similar to provisions in the House and Senate versionsof H.R. 6 , but with differing authorizations. The House authorized $90 million totalfor the partnership; the Senate authorized $130 million. Section 752: Mobile Emission Reductions Trading. Within 180 days of enactment, theEPA Administrator would be required to submit a report to Congress on EPA's experience with thetrading of mobile source emission reduction credits to stationary sources to meet emission offsetrequirements within Clean Air Act nonattainment areas. Section 753: Aviation Fuel Conservation and Emissions. This section would require theFederal Aviation Administration and EPA to jointly study the impact of aircraft emissions on airquality in Clean Air Act nonattainment areas, and ways to promote fuel conservation measures andreduce emissions. Section 754: Diesel Fueled Vehicles. The Secretary of Energy would be required toaccelerate research on emissions control technologies for diesel motor vehicles. The objective ofthe research would be to enable diesel technology to meet Tier 2 emission standards not later than2010. (These standards will apply to cars and light trucks after the 2003 model year.) No newfunding would be authorized. Section 755: Conserve by Bicycling Program. The Department of Transportation (DOT)would be directed to conduct up to 10 pilot bicycling projects to conserve energy. A minimum of20% of each project's costs would have to be provided by state or local sources. Also, DOT wouldbe directed to engage the National Academy of Sciences to conduct a research study on the feasibilityof converting motor vehicle trips to bicycle trips. Some local governments have experimented withpolice bicycle patrols and other bicycling programs. This provision may help expand such uses ofbicycling. Section 756: Reduction of Engine Idling of Heavy-Duty Vehicles. EPA would be requiredto study whether existing models of air emissions accurately reflect emissions from idling vehicles. Further, EPA would be required to establish a program to support the deployment of idle-reductiontechnologies. A total of $95 million would be authorized for FY2004 through FY2006 for thedeployment program. This section of the conference report varies significantly from the provisions in the Houseand Senate versions of the bill. First, both the House and Senate versions would have required theSecretary of Energy to study the potential energy savings from idle-reduction technologies. Further,the Senate version would have given the Secretary of Energy the authority to require idle-reductiontechnologies on all new heavy-duty vehicles. Section 757: Biodiesel Engine Testing Program. The Secretary of Energy would berequired to study the effects of biodiesel and biodiesel blends on current and future emissions controltechnologies. $5 million would be authorized annually for FY2004 through FY2008. Section 758: High Occupancy Vehicle Exception. The Transportation Equity Act for the21st Century (TEA-21, P.L. 105-178 ) would be amended to allow states to exempt hybrid anddedicated alternative fuel vehicles from high occupancy vehicle (HOV) restrictions. ThroughSeptember 30, 2003, states had the authority to exempt certain types of alternative fuel vehicles fromthe restrictions. However, hybrid vehicles and some alternative fuel vehicles did not qualify. As theexisting authorization has expired, states do not currently have the authority to exempt any type ofalternative fuel vehicle from HOV restrictions. The Senate version of H.R. 6 wouldhave allowed states to exempt alternative fuel vehicles (but not hybrids); the House versioncontained no similar provision. Sections 771-774: Fuel Economy Standards. The conference bill would authorize $2million annually during FY2004-FY2008 for the National Highway Traffic Safety Administration(NHTSA) to carry out fuel economy rulemakings (Sec. 771) . It would expand the criteria that theagency would be required to take into account in setting maximum feasible fuel economy for carsand light trucks, including the effects of prospective standards on vehicle safety and automotiveindustry employment (Sec. 772) . In many instances, these additional factors may add specificity tobroader considerations that are already taken into account by NHTSA in developing its rules. The legislation would also extend corporate average fuel economy (CAFE) credits that accrueto manufacturers of dual-fueled vehicles. The cap to the credit of 1.2 miles per gallon (mpg) earnedby any individual manufacturer would be extended to model year (MY) 2008. It was otherwisescheduled to drop to a cap of 0.9 mpg beginning in MY2005. The bill would postpone institutionof the 0.9 cap until MY2009 and authorize it through MY2013 (Sec. 773) . It also would require astudy to explore the feasibility and effects of reducing automobile fuel consumption ""a significantpercentage"" by MY2012 (Sec. 774) . Current Law. The Energy Policy and Conservation Act ( P.L. 94-163 ) established CAFEstandards for passenger cars and light duty trucks. The current CAFE standards are 27.5 mpg forpassenger automobiles and 20.7 mpg for light trucks, a classification that also includes sport utilityvehicles (SUVs). A final rule issued by NHTSA on April 1, 2003, requires a boost in light truck fueleconomy to 22.2 mpg by MY 2007. Sections 801-809: Hydrogen Research and Development. Title VIII of the conferencereport would reauthorize hydrogen fuel research and development at the Department of Energy (Sec.803) . The title would establish an Interagency Task Force to coordinate federal research (Sec. 804) . Further, the title would require the Secretary of Energy to develop a plan for the development ofhydrogen fuel and fuel cells (Sec. 802) , and would establish a Hydrogen Technical and Fuel CellAdvisory Committee to advise the Secretary and review the development plan (Sec. 805) . DOE'splans for the hydrogen program would be reviewed by the National Academy of Sciences (Sec. 806) ,and the Secretary of Energy would represent U.S. interests related to hydrogen programs inconsultation with relevant agencies (Sec. 807) . Specified authorities of the Secretary ofTransportation would not be affected (Sec. 808) . A total of $2.15 billion would be authorized forFY2004 through FY2008 (Sec. 809) . (Definitions are provided in Sec. 801 .) Policy Context. There has been increased interest in hydrogen as a fuel in transportation,stationary, and mobile applications because of potential environmental and energy security benefits. In the State of the Union Address on January 28, 2003, President George W. Bush announced a newHydrogen Fuel Initiative to promote research and development on hydrogen and fuel cells. Alongwith the FreedomCAR initiative (announced in January 2002), the Administration is seeking a totalof $1.8 billion through FY2008. This request includes approximately $720 million in new funding. The conference report would authorize $2.15 billion over the same time frame, slightly higher thanthe President's request. The House version of H.R. 6 would have authorized fundingat the President's requested level ($1.8 billion), while the Senate version would have authorizedsignificantly less ($420 million). However, before it was replaced with the Senate version of H.R.6, S. 14 would have authorized nearly double the President's request ($3.0billion). In addition to the above provisions on funding, the Senate version of H.R. 6 would have required the Secretary of Energy to develop a program to promote the availability of100,000 fuel cell vehicles by 2010 and 2.5 million vehicles by 2020. Neither the House version northe conference report on H.R. 6 contained this provision. Section 901: Goals. DOE would be directed to conduct energy research, development,demonstration, and commercial application programs to support federal energy policy. As part ofeach annual budget request, the Secretary of Energy would be required to publish measurablefive-year cost and performance-based goals that cover energy efficiency, electricity generation,renewable energy, fossil energy, and nuclear energy programs. These programs are currently funded. Both the House and Senate versions of H.R. 6 had more specific goals, such as toreduce national energy intensity. Section 902: Definitions. For Title IX, this section provides several definitions, includingmission, institution of higher education, and national laboratories. Section 904: Energy Efficiency. Funding for DOE energy efficiency programs would beauthorized for five fiscal years. Funding authorizations for most of these programs have expired.Constraints and prohibitions on funding, such as the exclusion of funding for issuing energyefficiency regulations, would be established. The Senate version had also included some goals forenergy efficiency programs. Section 905: Next Generation Lighting Initiative. A DOE program would be created thataims to develop advanced white light-emitting diodes (LEDs) for high efficiency lighting. TheseLEDs are expected to be more efficient than incandescent and fluorescent lights. Both the House andSenate versions had a specific target date for LED development. Also, DOE would be directed toarrange for the National Academy of Sciences to conduct periodic reviews of the initiative. Section 906: National Building Performance Initiative. An interagency group would beestablished to address energy efficiency R&D for buildings. The National Institute of Standards andTechnology would be directed to provide administrative support. This provision would increasecoordination among already existing programs. Section 907: Secondary Electric Vehicle Battery Use Program. A program would beestablished at DOE for R&D on applications of used electric vehicle batteries for utility andcommercial power storage and power quality. Section 908: Energy Efficiency Science Initiative. A program of competitive grants forresearch on energy efficiency would be created. An annual report would be filed with each DOEbudget request. Section 909: Electric Motor Control Technology. DOE would be required to conduct aprogram on advanced electronic control devices to improve the energy efficiency of electric motors;heating, ventilation, and air conditioning systems; and related equipment. Section 911: Distributed Energy and Electric Energy Systems. Five years of fundingauthorizations would be provided for distributed energy, electric energy, and micro-cogenerationprograms. Section 912: Hybrid Distributed Power Systems. DOE would be directed to prepare astudy (strategy) and identify barriers for hybrid distributed power systems that use renewables,storage, and interconnection equipment. Section 913: High Power Density Industry Program. DOE would be required to createa research, development, and demonstration (RD&D) program to improve energy efficiency and loadmanagement of data centers, computer server farms, and other high power density facilities. Section 914: Micro-Cogeneration Energy Technology. DOE would be directed to makecompetitive grants to consortia to develop micro-cogeneration technology, including systems thatcould be used for residential heating. Section 915: Distributed Energy Technology Demonstration Program. DOE would beauthorized to provide financial assistance to consortia for demonstrations to accelerate the use ofdistributed energy technologies in highly energy-intensive commercial applications. This provisiondid not appear in either the House or Senate version. Section 916: Reciprocating Power. DOE would be required to create a program for fuelsystem optimization and emissions reduction after-treatment technologies for industrial reciprocatingengines, including retrofits for natural gas or diesel engines. This provision did not appear in eitherthe House or Senate version. Section 918: Renewable Energy. Funding for DOE renewable energy programs would beauthorized for five fiscal years. Also, specific authorizations would be provided for bioenergy,concentrating solar power, and public buildings. Funding for Renewable Support andImplementation would be excluded. Section 919: Bioenergy Programs. DOE would be directed to conduct programs onbiopower, biofuels, bio-based products, integrated biorefineries, feedstocks, enzymes, and economicanalysis. Program goals would include the development of technologies that could make biofuelsthat are price competitive with gasoline or diesel fuel. Section 920: Concentrating Solar Power Research and Development Program. DOEwould be required to conduct a program to use concentrating solar power to produce hydrogen,including coordination with the Advanced Reactor Hydrogen Cogeneration Project established bySection 651. An assessment of the potential impact of this technology would be required. Also, areport would be required that examines the economic and technical feasibility of a pilot facility thatcould produce electricity or hydrogen. This provision did not appear in either the House or Senateversion. Section 921: Miscellaneous Projects. DOE would be empowered to conduct programs onocean and wave energy, combinations of renewable energy technologies with one another, andcombinations with other energy technologies, including the combined use of wind power and coalgasification technologies. Section 922: Renewable Energy in Public Buildings. DOE would be required to conductan innovative program to put renewable energy equipment in state and local buildings, providing upto 40% of a project's incremental costs. All applicants would be required to show a continuingcommitment to renewable energy use. Section 923: Study of Marine Renewable Energy Options. DOE would be required toarrange with the National Academy of Sciences to conduct a study on renewable energy generationfrom the ocean, including energy from waves, tides, currents, and from the variation in watertemperature with ocean depth (ocean thermal energy). Section 924: Nuclear Energy Authorizations. Funding would be authorized throughFY2008 for nuclear energy research, development, demonstration, and commercial applicationactivities, including DOE nuclear R&D infrastructure support. Similar authorizations were includedin the House and Senate bills. Section 925: Nuclear Energy Research and Development Programs. DOE would berequired to carry out a Nuclear Energy Research Initiative, a Nuclear Energy Plant OptimizationProgram, a Nuclear Power 2010 Program (to encourage deployment of new commercial reactors assoon as possible), and a Generation IV Nuclear Energy Systems Initiative (for longer-term reactordeployment), and nuclear infrastructure support. These programs, which were included in both theHouse and Senate bills, are currently conducted by DOE without specific funding authorizations. Section 926: Advanced Fuel Cycle Initiative. DOE's Office of Nuclear Energy, Science,and Technology would be required to conduct an R&D program on advanced technologies for thereprocessing of spent nuclear fuel. The technologies should be resistant to nuclear weaponsproliferation and support alternative spent fuel disposal strategies and Generation IV advancedreactor concepts. DOE is currently implementing the Advanced Fuel Cycle Initiative without aspecific funding authorization. Spent fuel recycling or reprocessing involves the extraction ofplutonium and uranium from spent nuclear fuel for use in new fuel. Supporters contend that it couldextend domestic energy supplies and reduce the hazard posed by nuclear waste, while opponents areconcerned that the extracted plutonium could be used for weapons. The House and Senate versionsof H.R. 6 had similar provisions. Section 927: University Nuclear Science and Engineering Support. DOE would berequired to support human resources and infrastructure in nuclear science and engineering andrelated fields. The program would include fellowship and faculty assistance programs and supportfor fundamental and collaborative research. The program would also be authorized to help convertresearch reactors to low-enriched fuels, provide technical assistance for relicensing and upgradingresearch reactors, and provide funding for reactor improvements. DOE funding for research projectscould be used for some of the operating costs of research reactors used in those projects. Thissection would add new statutory requirements to the existing DOE University Reactor FuelAssistance and Support Program. Similar provisions were included in the House and Senate bills. Section 928: Security of Reactor Designs. DOE's Office of Nuclear Energy, Science, andTechnology would be required to carry out an R&D program on technology for increasing the safetyand security of reactor designs. This provision was not in the House and Senate bills. Section 929: Alternatives to Industrial Radioactive Sources. After studying the currentmanagement of industrial radioactive sources and developing a program plan, DOE would berequired to establish an R&D program on alternatives to large industrial radioactive sources. Thisprovision was not in the House and Senate bills. Section 930: Deep Borehole Disposal of Spent Nuclear Fuel. DOE would be required tostudy the feasibility of deep borehole disposal of spent nuclear fuel and high-level radioactive waste. Boreholes could potentially go much deeper than the currently planned underground repository atYucca Mountain, Nevada. This provision was taken from the House bill. Section 931: Fossil Energy Authorizations. Funding levels would be authorized for fossilenergy R&D activities for FY2004-FY2008, including extended authorization for the Office ofArctic Energy for FY2004-FY2012. Institutions of higher learning would receive not less than 20%of funding during each fiscal year. Section 932: Oil and Gas Research Programs. Oil and gas R&D programs would includegas hydrates, ultra-clean fuels, heavy oil, oil shale, and environmental research. Research into fuelcells and technology transfer are also specified. This section would require a report to Congress onnatural gas reserves and resource estimates in federal and state waters off the coast of Louisiana andTexas. Based on the existing Clean Power and Energy Research Consortium, a national center orconsortium of excellence in clean energy and power generation would be established to focus on gasturbines for power generation, emissions reduction, energy conservation, and education. Section 933: Technology Transfer. A competitive program would be established to transferDOE offshore oil and gas technology to the private sector. Section 934: Coal Mining Technology. An R&D program on coal mining technologieswould be established at DOE. Activities would reflect priorities of the Mining Industry of the FutureProgram along with guidance from National Academy of Sciences reports on mining technology. R&D would seek to minimize environmental contaminants, and develop techniques for horizontaldrilling in coal beds for more efficient methane recovery. Section 935: Coal and Related Technologies Programs. In addition to the clean coalprograms authorized in Title IV, the Secretary of Energy would be required to conduct an R&Dprogram on integrated gasification combined-cycle systems, turbines for synthesis gas from coal,carbon sequestration, and other coal-related technologies. Cost and performance goals would beestablished for the cost-competitive use of coal for electricity generation, as chemical feedstock, andas transportation fuel. Section 936: Complex Well Technology Facility. This facility would be established at theRocky Mountain Oilfield Testing Center to increase the range of extended drilling technologies. Section 937: Fischer-Tropsch Diesel Fuel Loan Guarantee Program. Loan guaranteeswould be authorized for five years for facilities using the Fischer-Tropsch process to produce dieselfuel from coal. Sections 941-949: Ultra-Deepwater and Unconventional Natural Gas and OtherPetroleum Resources. Part II of Subtitle E would authorize and provide funding for a DOE oil andgas research awards program. Advances in seismic surveying, improved drilling methods, and othernew technology have allowed oil and gas drilling at greater depths on the outer continental shelf andgreater production of unconventional on-shore resources. While the OCS is a major source ofdomestic oil and gas supply, offshore drilling proposals often generate substantial environmentalcontroversy. Current Law. DOE R&D programs for natural gas and petroleum technologies are fundedin the annual Department of the Interior and Related Agencies appropriations bill. Conference Report. R&D would be directed toward the demonstration and commercialapplication of technology for ultra-deepwater oil and gas production, including unconventional oiland gas resources. The R&D program would be designed to benefit ""small producers"" and addressenvironmental concerns. Complementary research would be carried out through DOE's NationalEnergy Technology Laboratory (Sec. 941) . The Secretary of Energy could contract with a consortiumto recommend ultra-deepwater research projects and manage funding awarded under this program (Sec. 942) . The Secretary would make competitive awards to research consortia for conducting R&Don advanced technologies for recovering coalbed methane and other unconventional resources (Sec.943) . The Secretary could reduce or eliminate the non-federal cost-share requirement for awardsunder this program, 2.5% of each award would be designated for technology transfer, and variousadditional award requirements would be stipulated (Sec. 944) . An Ultra-Deepwater AdvisoryCommittee and an Unconventional Resources Technology Advisory Committee would beestablished (Sec. 945) as would criteria for foreign participation (Sec. 946) . The authority in thispart would terminate at the end of FY2011 (Sec. 947) . The terms deepwater, ultra-deepwater,unconventional oil and gas, independent producers of oil and gas, and others would be defined (Sec.948) . The Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Research Fundwould be established. Revenues derived from federal oil and gas leases, after all previouslymandated distributions of those revenues had been made, would be deposited in the fund, up to $150million annually during FY2004-FY2013. During the same period, an additional $50 million peryear (such sums as necessary) would be authorized to be appropriated to the fund. The Secretaryof Energy could obligate money from the fund for programs in this part without an overall annuallimit, although annual percentage allocations among the programs would be spelled out (Sec. 949) . Section 951: Science Authorizations. Appropriations would be authorized for the Officeof Science for FY2004 through FY2008, with increases of 10%-15% per year. Within these totals,appropriations would be authorized for specific programs and activities of the Office. This provisionis similar to the House bill but specifies more detailed allocations and incorporates changes in someof the funding levels. Section 952: United States Participation in ITER. Authority would be given for theUnited States to participate in the international fusion energy experiment known as ITER. Criteriawould be specified for any agreement on U.S. participation. DOE would be directed to develop aplan for ITER participation and have it reviewed by the National Academy of Sciences. Funds couldnot be expended for construction until the plan and other reports were provided to Congress. Ifconstruction of ITER appeared unlikely, DOE would be directed to submit a plan for an alternativeexperiment known as FIRE. This provision was in the House bill. A related provision was in theSenate bill. The United States withdrew from the design phase of ITER in 1998 at congressionaldirection, largely because of concerns about cost and scope. The project has since been restructured,and in January 2003, the Administration announced its intention to reenter the project. Otherinternational partners include the European Union, Japan, Russia, and China. Section 953: Plan for the Fusion Energy Science Program. Competitiveness in fusionenergy, including a demonstration of electric power or hydrogen production, would be declared tobe U.S. policy. DOE would be directed to submit a plan to carry out that policy, subject to certainrequirements. This provision, with some wording differences, was in the House bill. A relatedprovision was in the Senate bill. Section 954: Spallation Neutron Source. DOE would be directed to report on theSpallation Neutron Source (SNS), including its cost and schedule, in its annual budget submissions.DOE obligations for the SNS, including prior year costs, could not exceed $1.2 billion (constructiononly) or $1.4 billion (total). This provision, with some wording differences, was in the House bill. Construction of the SNS is scheduled to be completed in 2006. Funding for the project beganin FY1999. Section 955: Support for Science and Energy Facilities and Infrastructure. DOE wouldbe directed to develop, implement, and report on a strategy for its nondefense laboratories andresearch facilities. The House bill contained a similar provision, but the strategy called for by theHouse provision would only have covered the laboratories and facilities of the Office of Science,whereas the conference language also covers the Office of Energy Efficiency and Renewable Energy;Office of Fossil Energy; and Office of Nuclear Energy, Science, and Technology. Section 956: Catalysis Research and Development Program. The Office of Sciencewould be directed to support a program of catalysis R&D, which would conduct research on usingprecious metals in catalysis, design new catalytic compounds using molecular knowledge, and pursueother specified objectives. The National Academy of Sciences would review the program every threeyears. This provision of the conference report is essentially new, although the House and Senate billscontained less detailed provisions authorizing appropriations for certain types of catalysis research. Section 957: Nanoscale Science and Engineering Research, Development,Demonstration, and Commercial Application. The Office of Science would be directed to supporta program of research, development, demonstration, and commercial application in nanoscience andnanoengineering, with specified goals and characteristics. The program would include support forresearch centers and major instrumentation. The House and Senate bills contained similar provisions. Section 958: Advanced Scientific Computing for Energy Missions. DOE would bedirected to support advances in the nation's computing capability through research on grandchallenge computational science problems. The Networking and Information Technology Researchand Development Program would conduct research on topics specified in the bill and would becoordinated with related activities in DOE and elsewhere. DOE would have to report to Congressbefore undertaking any new initiative to develop advanced architectures for high-speed computing.This provision, with some wording differences, was in the House bill. A similar provision was in theSenate bill. Section 959: Genomes to Life Program. DOE would be directed to establish a research,development, and demonstration program in genetics, protein science, and computational biology,with specified goals. DOE would have to submit a research plan for this program to Congress withinone year and contract with the National Academy of Sciences to review the plan within an additional18 months. Biomedical research and research related to humans would not be permitted as part ofthe program. A similar provision was in the House bill. The conference report broadened the Houselanguage to include national security among the program's goals and to specify in more detail theprogram's support for research facilities and equipment. Section 960: Fission and Fusion Energy Materials Research Program. DOE would bedirected to establish, in its FY2006 budget request, an R&D program on materials science foradvanced fission reactors and fusion energy. This provision is new in the conference report. A relatedprovision in the House bill called for a report on the status of materials for fusion energy. Section 961: Energy-Water Supply Program. This section would establish, within theDepartment of Energy, the Energy-Water Supply Program for the purpose of studying (1)energy-related and other issues associated with the supply of drinking water and the operation ofcommunity water systems, and (2) water supply issues related to energy. The program would bedirected to develop methods, means, procedures, equipment, and improved technologies in threeareas: (1) arsenic removal; (2) desalination; and (3) water and energy sustainability. The arsenicresearch program would be required, to the extent practicable, to evaluate the means to: reduceenergy costs of arsenic removal technologies; minimize operating and maintenance costs; andminimize waste resulting from use of such technologies. The desalination program provisions woulddirect the Secretary to work with the Commissioner of Reclamation of the Department of the Interioron a desalination R&D program, and would authorize funds to be used for construction projects. Thissection also would direct the Secretary to develop a water and energy sustainability program toidentify methods, means, and technologies necessary to ensure that sufficient quantities of water areavailable to meet energy needs and that sufficient energy is available to meet water needs. TheSecretary would be required to assess future water resource and energy needs, and develop a programplan and a technology development roadmap for the Water and Energy Sustainability Program. Section 962: Nitrogen Fixation. DOE would be directed to support a program of research,on nitrogen fixation. This provision was in the House bill. Section 964: U.S.-Mexico Energy Technology Cooperation. A collaborative research,development, and demonstration (RD&D) program would be established in the DOE Office ofEnvironmental Management to promote energy-efficient and environmentally sound economicdevelopment along the U.S.-Mexico border. This provision aims to minimize public health risksfrom industrial activities in the border region. A five-year authorization would be provided. Section 965: Western Hemisphere Energy Cooperation. The Secretary of Energy wouldbe directed to conduct a cooperative effort with other nations of the Western Hemisphere to assistin formulating economic and other policies that increase energy supply and energy efficiency. Also,the Secretary would be directed to assist with the development and transfer of energy supply andefficiency technologies that would have a beneficial impact on world energy markets. To increasethe program's credibility with other Western Hemisphere countries, the Secretary would be directedto seek participation from universities, including Hispanic-serving institutions and Historically BlackColleges and Universities. A five-year authorization would be established. This provision did notappear in either the House or Senate version. Section 966: Waste Reduction and Use of Alternatives. DOE would be authorized tomake a single grant to a university to study the feasibility of burning post-consumer carpet in cementkilns. A $500,000 authorization would be established. Section 967: Report on Fuel Cell Test Center. The Secretary of Energy would be requiredto study the establishment of a test center for advanced fuel cells at an institution of higher education. The report would present a conceptual design and cost estimates for the center. Section 968: Arctic Engineering Research Center. DOE, with DOT and the U.S. ArcticResearch Commission, would provide annual grants of $3 million for FY2004-FY2009 through theDOE Arctic Energy Office to an adjacent university to establish and operate an Arctic EngineeringResearch Center in Fairbanks, Alaska. The Center would conduct research on improved methods ofconstruction and materials to improve Arctic region roads, bridges, and other infrastructure. Section 969: Barrow Geophysical Research Facility. The Department of Commerce, withDOE, DOI, EPA, and the National Science Foundation, would establish the Barrow GeophysicalResearch Facility to support Arctic scientific research activities. Appropriations of $61 millionwould be authorized for the planning, design, construction, and support of the facility. Section 970: Western Michigan Demonstration Project. EPA, in consultation with theState of Michigan and affected local officials, would be required to conduct a demonstration projectto address the effect of transported ozone and ozone precursors on air quality in southwesternMichigan. The project would assess any difficulties the area may experience in meeting the 8-hournational ambient air quality standard for ozone due to the effect of transported ozone or ozoneprecursors. EPA would be required to complete the demonstration project within two years of thedate of enactment and would be prohibited from imposing any requirement or sanction that mightotherwise apply during the pendency of the demonstration project. Section 971: Availability of Funds. Funds authorized under this title would remainavailable until expended. This provision was in the House bill. Section 972: Cost Sharing. Cost sharing would be required for programs carried out underthis title. The minimum non-federal share would be 20% for R&D programs and 50% fordemonstration and commercial application programs, but DOE could lower or waive theserequirements in certain circumstances. Similar provisions were in the House and Senate bills. Section 973: Merit Review of Proposals. Awards of funds authorized under this title wouldbe permitted only after an impartial review of scientific and technical merit. This provision was inthe House bill. The Senate bill included a similar provision but specified an ""independent review ...by the Department"" rather than an ""impartial review ... by or for the Department."" Section 974: External Technical Review of Departmental Programs. Advisory boardswould be established for DOE programs in energy efficiency, renewable energy, nuclear energy, andfossil energy. The requirement could be met by existing DOE boards or by boards established byarrangement with the National Academy of Sciences. Existing advisory committees would continuefor the programs of the Office of Science. The chairs of the Office of Science committees wouldconstitute a Science Advisory Committee for the Director of the Office. This provision was in theHouse bill. A similar provision in the Senate bill would establish an additional advisory board forclimate change technology and would omit the Science Advisory Committee of existing committeechairs. Section 975: Improved Coordination of Technology Transfer Activities. A TechnologyTransfer Working Group would be established, made up of representatives from DOE's nationallaboratories and single-purpose research facilities. A Technology Transfer Coordinator would bedesignated to coordinate the working group's activities and oversee DOE technology transferactivities generally. This provision was in the House bill. A similar provision was in the Senate bill. Section 976: Federal Laboratory Educational Partners. The Stevenson-WydlerTechnology Innovation Act of 1980 would be amended so that royalties to the government fromlicensing of inventions and income to the government from cooperative R&D agreements(CRADAs) could be used for educational assistance as well as for scientific R&D and other currentlypermitted purposes. This provision was in the House bill. Section 977: Interagency Cooperation. DOE and NASA would be directed to holddiscussions leading to an interagency agreement that would make NASA expertise in energy morereadily available to DOE. This provision was in the House bill. Section 978: Technology Infrastructure Program. DOE would be directed to establisha program to help national laboratories and single-purpose research facilities stimulate thedevelopment of technology clusters, leverage and benefit from commercial activities, and exchangescientific and technological expertise with other organizations. A report would be required in 2006on whether the program should continue and, if so, how it should be managed. A similar provisionwas in the Senate bill. Section 979: Reprogramming. Within 60 days after any appropriation authorized under thistitle, DOE would be required to report to the appropriate authorizing committees on how theappropriated amounts would be distributed. Subsequent reprogramming would be limited to 5%unless reported to the same committee with at least 30 days' notice. This provision was in the Housebill. Section 980: Construction with Other Laws. DOE would be directed to carry out theprograms under this title in accordance with other statutes that govern the operations of DOE andits programs. This provision was in the House bill. Section 981: Report on Research and Development Evaluation Methodologies. DOEwould be directed to arrange with the National Academy of Sciences for a study of evaluationmethodologies for DOE's scientific and technical programs. This provision is new in the conferencereport. Section 982: Department of Energy Science and Technology Scholarship Program. DOE would be authorized to establish a scholarship program to help recruit and prepare students forcareers in DOE. Scholarship recipients would be required to work for DOE for 24 months per yearof scholarship received. This provision, except a final subsection that authorizes appropriations, wasin the House bill. The Senate bill contained a related provision regarding postdoctoral and seniorresearch fellowships. Section 983: Report on Equal Employment Opportunity Practices. DOE would berequired to report to Congress every two years on equal employment opportunity practices at thenational laboratories. This provision was in the House bill. Section 984: Small Business Advocacy and Assistance. Each national laboratory wouldbe required to establish a program of assistance to small businesses and to designate a small businessadvocate to increase the participation of small businesses in programs and to provide them withtraining and technical assistance. DOE could also require small business assistance and advocatesat single-purpose research facilities. A similar provision was in both the House and the Senate bills. Section 985: Report on Mobility of Scientific and Technical Personnel. DOE would berequired to report on disincentives to the transfer of scientific and technical personnel among thecontractor-operated national laboratories and single-purpose research facilities. This provision wasin the House bill. A similar provision was in the Senate bill. Section 986: Report on Obstacles to Commercial Application. DOE would be directedto arrange with the National Academy of Sciences for a study of obstacles to acceleratingcommercial application of energy technology and of DOE policies for technology transfer-relateddisputes between DOE contractors and the private sector. This provision was in the House bill. TheSenate bill included a related provision on acceleration of the energy R&D cycle. Section 987: Outreach. DOE would be directed to include an information outreachcomponent in each program authorized by this title. This provision was in the House bill. Section 988: Competitive Award of Management Contracts. Management and operatingcontracts for DOE non-military energy laboratories would have to be awarded competitively unlessthe Secretary of Energy granted a waiver on a case-by-case basis. The Secretary would not bepermitted to delegate his waiver authority and would have to give Congress 60-days' notice beforeawarding a non-competitive contract. This provision was in the House bill. In the past, management contracts at most DOE laboratories have been extended withoutcompetition. In some cases, laboratories have been managed by the same contractor for 50 years ormore. In November 2003, DOE released the report of a blue-ribbon commission that it establishedto examine this issue. The commission's report is available online at http://www.seab.doe.gov/publications/brcDraftRpt.pdf . It states, ""the issue of whether competitionshould be routinely used for research and development laboratories is subject to wide and variedopinions."" Section 989: Educational Programs in Science and Mathematics. Competitive events forstudents, designed to encourage interest in science and mathematics, would be added to the list ofauthorized education activities that may be conducted through DOE R&D facilities. This provisionis new in the conference report. Section 1001: Additional Assistant Secretary Position. The DOE Organization Act (42U.S.C. 7133) would be amended to increase the number of assistant secretary positions from six toseven. It would be the sense of Congress that DOE nuclear programs, currently headed by a director,be headed by an assistant secretary. This provision was taken from the Senate bill. Section 1002: Other Transactions Authority. This would amend Section 646 of the DOEOrganization Act (42 U.S.C. 7256) to allow the Energy Secretary to enter into additional transactionsfurthering research, development, or demonstration without requiring that title to inventions bevested in the federal government as currently specified by Section 9 of the Federal NonnuclearEnergy Research and Development Act of 1974 (42 U.S.C. 5908) or section 152 of the AtomicEnergy Act of 1954 (42 U.S.C. 2182). This section is similar to a provision in the Senate versionof H.R. 6 . Section 1101: Training Guidelines for Electric Energy Industry Personnel. TheSecretary of Energy, in consultation with the Secretary of Labor, along with electric industryrepresentatives and employee representatives, would be required to develop model personnel trainingguidelines to support the reliability and safety of the electric system. Section 1102: Improved Access to Energy-Related Scientific and Technical Careers. DOE education programs would be required to give priority to activities that encourage women andminorities to pursue scientific and technical careers. DOE national laboratories (and other DOEscience facilities if so directed by the Secretary) would be directed to increase the participation ofHistorically Black Colleges and Universities, Hispanic-serving institutions, and tribal colleges inactivities such as research, equipment transfer, training, and mentoring. DOE would be required toreport on activities under this section within two years of enactment. The Senate bill included asimilar provision. Section 1103: National Power Plant Operations Technology and Education Center. DOE would establish a National Power Plant Operations Technology and Education Center foron-site and Internet-based training of certified operators for non-nuclear electric power generationplants. Section 1104: International Energy Training. DOE, with the Departments of Commerce,Interior, and State, and FERC, would coordinate training and outreach efforts for internationalcommercial energy markets in countries with developing and restructuring economies. Annualappropriations of $1.5 million for FY2004-FY2007 would be authorized. Title XII of the H.R. 6 conference report deals with electric power issues. Inpart, this title would create an electric reliability organization (ERO) that would enforce mandatoryreliability standards for the bulk-power system. All ERO standards would be approved by the FederalEnergy Regulatory Commission (FERC). Under this title, the ERO could impose penalties on a user,owner, or operator of the bulk-power system that violates any FERC-approved reliability standard. This title also addresses transmission infrastructure issues. The Secretary of Energy would be ableto certify congestion on the transmission lines and issue permits to transmission owners. Permitholders would be able to petition in U.S. District Court to acquire rights-of-way for the constructionof transmission lines through the exercise of the right of eminent domain. FERC's Standard Market Design notice of proposed rulemaking would be remanded to theCommission. The conference report would clarify native load service obligation. Federal utilitieswould be allowed to participate in regional transmission organizations. The electricity title would repeal provisions of the Public Utility Regulatory Policies Act(PURPA) (9) that requireutilities to purchase power from specified outside sources for a price equal to the cost they wouldhave incurred to generate the additional power themselves, as determined by utility regulators. ThePublic Utility Holding Company Act of 1935 (PUHCA, 15 U.S.C. 79 et seq.) would be repealed. FERC and state regulatory bodies would be given access to utility books and records. FERC would be required to issue rules to establish an electronic system that providesinformation about the availability and price of wholesale electric energy and transmission services. For wholesale electric rates that the Commission finds to be unjust, unreasonable, or undulydiscriminatory, the effective date for refunds would begin at the time of the filing of a complaint withFERC but not later than five months after filing of a complaint. Criminal and civil penalties wouldbe increased. The Secretary of Energy would be required to transmit to Congress a study on whetherFERC's merger review authority duplicates other agencies' authority. The Federal Power Act (FPA,16 U.S.C. 791 et seq.) would be amended to give FERC review authority for transfer of assets valuedin excess of $10 million. Section 1201: Short Title. This title may be cited as the ""Electric Reliability Act of 2003."" Section 1211: Electric Reliability Standards. This section would require the FederalEnergy Regulatory Commission (FERC) to promulgate rules within 180 days of enactment to createa FERC-certified electric reliability organization (ERO). The ERO would develop and enforcereliability standards for the bulk-power system. All ERO standards would be approved by FERC. Under this title, the ERO could impose penalties on a user, owner, or operator of the bulk-powersystem that violates any FERC-approved reliability standard. In addition, FERC could ordercompliance with a reliability standard and could impose a penalty if FERC finds that a user, owner,or operator of the bulk-power system has engaged in, or is about to engage in, a violation of areliability standard. This provision would not give an ERO or FERC authorization to orderconstruction of additional generation or transmission capacity. This section would also require that FERC establish a regional advisory body if requestedby at least two-thirds of the states within a region that have more than half of their electric loadserved within that region. The advisory body would be composed of one member from eachparticipating state in the region, appointed by the governor of each state, and could provide adviceto the ERO or FERC on reliability standards, proposed regional entities, proposed fees, and any otherresponsibilities requested by FERC. The entire reliability provision would not apply to Alaska orHawaii. Section 1221: Siting of Interstate Electric Transmission Facilities. Every three years, theSecretary of Energy would be required to conduct a study of electric transmission congestion. Basedon the findings, the Secretary could designate a geographic area as being congested. Under certainconditions, FERC would be authorized to issue construction permits. Under proposed new FederalPower Act Section 216(d), affected states, federal agencies, Indian tribes, property owners, and otherinterested parties would have an opportunity to present their views and recommendations withrespect to the need for, and impact of, a proposed construction permit. However, there is norequirement for a specific comment period. New FPA section 216(e) would allow permit holdersto petition in U.S. District Court to acquire rights-of-way through the exercise of the right ofeminent domain. Any exercise of eminent domain authority would be considered to be takings ofprivate property for which just compensation is due from permit holders. New FPA Section 216(g)does not state whether property owners would be required to reimburse compensation paid by permitholders if the rights-of-way were transferred back to the owner. Under this section, an applicant for federal authorization to site transmission facilities onfederal lands could request that the Department of Energy, rather than the Department of the Interioror other land-managing agency, be the lead agency to coordinate environmental review and otherfederal authorization. Once a completed application was submitted, all related environmentalreviews would be required to be completed within one year unless another federal law makes thatimpossible. FPA section 216(h) would give the Department of Energy (DOE) new authority toprepare environmental documents and appears to give DOE additional decision-making authorityfor rights-of-way and siting on federal lands. This could give DOE input into the decision processfor creating rights-of-way. By allowing reliance on prior analysis, this section could shorten orotherwise affect review under Section 503 of the Federal Land Policy and Management Act. If afederal agency has denied an authorization required by a transmission or distributions facility, thedenial could be appealed by the applicant or relevant state to the Secretary of Energy. The Secretaryof Energy would be required to issue a decision within 90 days after the filing of an appeal. Statescould enter into interstate compacts for the purposes of siting transmission facilities and theSecretary of Energy could provide technical assistance. This section would not apply to the ElectricReliability Council of Texas (ERCOT). A similar provision was included in the House-passed H.R. 6 . Section 1222: Third-Party Finance. The Western Area Power Administration (WAPA)and the Southwestern Power Administration (SWPA) would be able either to continue to design,develop, construct, operate, maintain, or own transmission facilities within their regions or toparticipate with other entities for the same purposes if: the Secretary of Energy designated the areaas a National Interest Electric Transmission Corridor and the project would reduce congestion, orthe project was needed to accommodate projected increases in demand for transmission capacity. The project would need to be consistent with the needs identified by the appropriate regionaltransmission organization (RTO) or independent system operator (ISO). No more than $100 millionfrom third-party financing may be used during fiscal years 2004 through 2013. This section was notincluded in either the House- or Senate-passed H.R. 6 . Section 1223: Transmission System Monitoring. Within six months of enactment, theSecretary of Energy and the Federal Energy Regulatory Commission would be required to completea study and report to Congress on what would be required to create and implement a transmissionmonitoring system for the Eastern and Western interconnections. The monitoring system wouldprovide all transmission system owners and regional transmission organizations real-timeinformation on the operating status of all transmission lines. This section was not included in eitherthe House- or Senate-passed H.R. 6 . Section 1224: Advanced Transmission Technologies. FERC would be directed toencourage deployment of advanced transmission technologies. This section was not included ineither the House- or Senate-passed H.R. 6 . Section 1225: Electric Transmission and Distribution Programs. The Secretary ofEnergy acting through the Director of the Office of Electric Transmission and Distribution wouldbe required to implement a program to promote reliability and efficiency of the electric transmissionsystem. Within one year of enactment, the Secretary of Energy would be required to submit toCongress a report detailing the program's five-year plan. Within two years of enactment, theSecretary of Energy would be required to submit to Congress a report detailing the progress of theprogram. The Secretary of Energy would be directed to establish a research, development,demonstration and commercial application initiative that would focus on high-temperaturesuperconductivity. For this project, appropriations would be authorized for FY2004 throughFY2008. In part, a similar provision was included in the House-passed H.R. 6 . Section 1226: Advanced Power System Technology Incentive Program. A programwould be established to provide incentive payments to owners or operators of advanced powergeneration systems. Eligible systems would include power generation or storage facilities using ""anadvanced fuel cell, turbine, or hybrid power system."" A total of $140 million would be authorizedfor FY2004 through FY2008. A similar provision was included in the House-passed H.R. 6 . In the House-passed version, $70 million would have been authorized forFY2004 through FY2010. Section 1227: Office of Electric Transmission and Distribution. This section wouldamend Title II of the Department of Energy Organization Act (10) and would establish anOffice of Electric Transmission and Distribution. The Director of the office would, in part,coordinate and develop a strategy to improve electric transmission distribution, implementrecommendations from the Department of Energy's National Transmission Grid Study, overseeresearch, development, and demonstration to support federal energy policy related to electricitytransmission and distribution, and develop programs for workforce training and power transmissionengineering. This section was not included in either the House- or Senate-passed H.R. 6 . Section 1231: Open Nondiscriminatory Access. FERC would be authorized, by rule ororder, to require unregulated transmitting utilities (power marketing administrations, state entities,and rural electric cooperatives) to transmit electricity for others at rates comparable to what theycharge themselves and would require that the terms and conditions of such transactions also becomparable. Exemptions would be established for utilities selling less than 4 millionmegawatt-hours of electricity per year, for distribution utilities, and for utilities that own or operatetransmission facilities that are not necessary to facilitate a nationwide interconnected transmissionsystem. This exemption could be revoked to maintain transmission system reliability. FERC wouldnot be authorized to order states or municipalities to take action under this section if such actionwould constitute a private use under section 141 of the Internal Revenue Code of 1986. FERC mayremand transmission rates to an unregulated transmitting utility if the rates do not comply with thissection. FERC is not authorized to order an unregulated transmitting utility to join a regionaltransmission organization or other FERC-approved independent transmission organization. Thissection is often referred to as ""FERC-lite."" Provisions on open access were included in both theHouse- and Senate-passed H.R. 6 , but the conference language differed. Terminationof exemptions for reliability purposes does not appear in either the House- or Senate-passed H.R. 6 . Section 1232: Sense of Congress on Regional Transmission Organizations. This sectionwould establish a sense of Congress that utilities should voluntarily become members of regionaltransmission organizations. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1233: Regional Transmission Organization Applications Progress Report. FERC would be required to report to Congress within 120 days of enactment the status of allregional transmission organization applications. Similar language was included in the House-passed H.R. 6 . Section 1234: Federal Utility Participation in Regional Transmission Organizations. Federal utilities (power marketing administrations or the Tennessee Valley Authority) would beauthorized to participate in regional transmission organizations. A law allowing federal utilities tostudy formation and operation of a regional transmission organization would be repealed. (11) A similar provision wasincluded in the House-passed H.R. 6 . Section 1235: Standard Market Design. FERC's proposed rulemaking on standard marketdesign (SMD) would be remanded to FERC for reconsideration (Docket No. RM01-12-000). SMDis a proposed system to provide uniform market procedures for wholesale electric powertransactions. No final rulemaking, including any rule or order of general applicability to the standardmarket design proposed rulemaking, could be issued before October 31, 2006, or could take effectbefore December 31, 2006. This section would retain FERC's ability to issue rules or orders and acton regional transmission organization or independent system operator filings. H.R. 6 ,as passed by the House and Senate, did not include a similar provision. Section 1236: Native Load Service Obligation. This section would amend the FederalPower Act to clarify that a load-serving entity is entitled to use its transmission facilities or firmtransmission rights to serve its existing customers before it is obligated to make its transmissioncapacity available for other uses. FERC would not be able to change any approved allocation oftransmission rights by an RTO or ISO approved prior to September 15, 2003. A similar provisionwas included in the House-passed H.R. 6 . Section 1237: Study on the Benefits of Economic Dispatch. The Secretary of Energy, inconsultation with the states, would be required to issue an annual report to Congress and the stateson the current status of economic dispatch. Economic dispatch would be defined as ""the operationof generation facilities to produce energy at the lowest cost to reliably serve consumers, recognizingany operational limits of generation and transmission facilities."" This section was included in theHouse-passed H.R. 6 . Section 1241: Transmission Infrastructure Investment. FERC would be required toestablish a rule to create incentive-based transmission rates. FERC would be authorized to revisethe rule. The rule would promote reliable and economically efficient electric transmission andgeneration, provide for a return on equity that would attract new investment in transmission,encourage use of technologies that increased the transfer capacity of existing transmission facilities,and allow for the recovery of all prudently incurred costs that are necessary to comply withmandatory reliability standards. In addition, FERC would be directed to implement incentiverate-making for utilities that join a regional transmission organization or Independent SystemOperator. The House-passed H.R. 6 did not include reliability in the proposed FERCrule. Section 1242: Voluntary Transmission Pricing Plans. This would amend the FederalPower Act to allow any transmission provider including a regional transmission organization orIndependent System Operator to determine how the cost of new transmission facilities would beallocated. The cost of all transmission expansion, except what is required for reliability purposes,would be assigned so that those who benefit from the addition of the transmission would pay anappropriate share of the costs. This is referred to as participant funding. This provision wouldprotect native load customers from paying for transmission upgrades needed for new generatorinterconnection if the new generation is not required by the native load (the demand of the utility'sexisting customers.) Participant funding was included in the House-passed H.R. 6 . Section 1251: Net Metering and Additional Standards. States that have not consideredimplementation and adoption of net metering standards would be required within three years ofenactment to consider such implementation. Net metering service is defined as: service to an electricconsumer under which electric energy generated by that electric consumer from an eligible on-sitegenerating facility (e.g., solar or small generator) and delivered to local distribution facilities maybe used to offset electric energy provided by the electric utility to the electric consumer during theapplicable billing period. Net metering provisions were included in the House- and Senate-passed H.R. 6 . Section 1252: Smart Metering. For states that have not considered implementation andadoption of a smart metering standard, state regulatory authorities would be required to initiate aninvestigation within one year of enactment, and issue a decision within two years of enactmentwhether to implement a standard for time-based meters and communications devices for all electricutility customers. These devices would allow customers to participate in time-based pricing rateschedules. This section would amend the Public Utility Regulatory Policies Act of 1978 (12) (PURPA) and wouldrequire the Secretary of Energy to provide consumer education on advanced metering andcommunications technologies, to identify and address barriers to adoption of demand responseprograms, and issue a report to Congress that identifies and quantifies the benefits of demandresponse. The Secretary of Energy would provide technical assistance to regional organizations toidentify demand response potential and to develop demand response programs to respond to peakdemand or emergency needs. FERC would be directed to issue an annual report, by region, to assessdemand response resources. A provision for real-time pricing and time-of-use metering standardswas included in the House- and Senate-passed H.R. 6 . Section 1253: Cogeneration and Small Power Production Purchase and SaleRequirements. This section would repeal the mandatory purchase requirement under Section 210of PURPA for new contracts if FERC finds that a competitive electricity market exists and aqualifying facility has access to independently administered, auction-based, day-ahead, and real-timewholesale markets, and long-term wholesale markets. Qualifying facilities would also need to haveaccess to transmission and interconnection services provided by a FERC-approved regionaltransmission entity that provides non-discriminatory treatment for all customers. Ownershiplimitations under PURPA would be repealed. Repeal of the mandatory purchase requirement wasincluded in the House- and Senate-passed H.R. 6 . Section 1261: Short Title. This subtitle may be cited as the ""Public Utility HoldingCompany Act of 2003."" Section 1262: Definitions. This section would provide definitions for: affiliate, associatecompany, commission, company, electric utility company, exempt wholesale generator and foreignutility company, gas utility company, holding company, holding company system, jurisdictionalrates, natural gas company, person, public utility, public-utility company, state commission,subsidiary company, and voting security. Section 1263: Repeal of the Public Utility Holding Company Act of 1935. The PublicUtility Holding Company Act of 1935 (PUHCA) would be repealed. The provision to repealPUHCA was included in both the House- and Senate-passed H.R. 6 . Section 1264: Federal Access to Books and Records. Federal access to books and recordsof holding companies and their affiliates would be provided. Affiliate companies would have tomake available to FERC books and records of affiliate transactions. Federal officials would haveto maintain confidentiality of such books and records. A similar provision was included in theHouse-and Senate-passed H.R. 6 . Section 1265: State Access to Books and Records. A jurisdictional state commissionwould be able to make a reasonably detailed written request to a holding company or any associatecompany for access to specific books and records, which would be kept confidential. Response tosuch a request would be mandatory. Compliance with this section would be enforceable in U.S.District Court. This section would not apply to an entity that was considered to be a holdingcompany solely by reason of ownership of one or more qualifying facilities. A similar provisionwas included in the House -and Senate-passed H.R. 6 . Section 1266: Exemption Authority. FERC would be directed to promulgate rules to makequalifying facilities, exempt wholesale generators, and foreign utilities exempt from the requirementfor federal access to books and records in Section 1264 . A similar provision was included in theHouse- and Senate-passed H.R. 6 . Section 1267: Affiliate Transactions. FERC would retain the authority to preventcross-subsidization and to assure that jurisdictional rates are just and reasonable. FERC and statecommissions would retain jurisdiction to determine whether associate company activities could berecovered in rates. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1268: Applicability. Except as specifically noted, this subtitle would not apply tothe U.S. government, a state or any political subdivision of the state, or foreign governmentalauthority operating outside the U.S. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1269: Effect on Other Regulations. FERC or state commissions would not beprecluded from exercising their jurisdiction under otherwise applicable laws to protect utilitycustomers. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1270: Enforcement. FERC would have authority to enforce this provision undersections 306-317 of the Federal Power Act. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1271: Savings Provisions. Persons would be able to continue to engage in legalactivities in which they have been engaged, or are authorized to engage in, on the effective date ofthis Act. This subtitle would not limit the authority of FERC under the Federal Power Act or theNatural Gas Act. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1272: Implementation. Not later than 12 months after enactment, FERC would berequired to promulgate regulations necessary to implement this subtitle and submit to Congressrecommendations for technical or conforming amendments to federal law that would be necessaryto carry out this subtitle. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1273: Transfer Resources. The Securities and Exchange Commission would berequired to transfer all applicable books and records to FERC. However, no time frame for transferof books and records is provided. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1274: Effective Date. Twelve months after enactment, this subtitle would takeeffect. Section 1275: Service Allocation. FERC would be required to review and authorize costallocations for non-power goods or administrative or management services provided by an associatecompany that was organized specifically for the purpose of providing such goods or services. Thissection would not preclude FERC or state commissions from exercising their jurisdiction under otherapplicable laws with respect to review or authorization of any costs. FERC would be required toissue rules within six months of enactment to exempt from the section any company and holdingcompany system if operations are confined substantially to a single state. This section was notincluded in either the House- or Senate-passed H.R. 6 . Section 1276: Authorization of Appropriations. Necessary funds to carry out this subtitlewould be authorized to be appropriated. A similar provision was included in the House- andSenate-passed H.R. 6 . Section 1277: Conforming Amendments to the Federal Power Act. The Federal PowerAct would be amended to reflect the changes to the Public Utility Holding Company Act of1935. (13) Section 1281: Market Transparency Rules. Within 180 days after enactment, FERCwould be required to issue rules to establish an electronic system that provides information aboutthe availability and price of wholesale electric energy and transmission services. FERC wouldexempt from disclosure any information that, if disclosed, could be detrimental to the operation ofthe effective market or jeopardize system security. FERC would be required to assure thatconsumers in competitive markets are protected from adverse effects of potential collusion or otheranti-competitive behaviors that could occur as a result of untimely public disclosure oftransaction-specific information. This section would not affect the exclusive jurisdiction of theCommodity Futures Trading Commission with respect to accounts, agreement, contracts, ortransactions in commodities under the Commodity Exchange Act. FERC would not be allowed tocompete with, or displace, any price publisher or regulate price publishers or impose anyrequirements on the publication of information. Creation of market transparency rules was includedin the House- and Senate-passed H.R. 6 . Section 1282: Market Manipulation. It would be unlawful to willfully and knowingly filea false report on any information relating to the price of electricity sold at wholesale or theavailability of transmission capacity with the intent to fraudulently affect data being compiled by afederal agency. It would be unlawful for any individual, corporation, or government entity(municipality, state, or power marketing administration) to engage in round-trip electricity trading. Round-trip trading is defined to include contracts in which purchase and sale transactions have nospecific financial gain or loss and are entered into with the intent to distort reported revenues, tradingvolumes, or prices. Section 1283: Enforcement. The Federal Power Act would be amended to allow electricutilities to file a complaint with FERC and to allow complaints to be filed against transmittingutilities. Criminal and civil penalties under the Federal Power Act would be increased. Criminalpenalties would not exceed $1 million and/or five years imprisonment. In addition, a fine of $25,000could be imposed. A civil penalty not exceeding $1 million per day per violation could be assessedfor violations of sections 211, 212, 213, or 214 of the Federal Power Act. Section 1284: Refund Effective Date. Section 206(b) of the Federal Power Act would beamended to allow the effective date for refunds to begin at the time of the filing of a complaint withFERC but not later than five months after such a filing. If FERC does not make its decision withinthe time-frame provided, FERC would be required to state its reasons for not acting in the providedtime-frame for the decision. A similar provision was included in the House- and Senate-passed H.R. 6 . Section 1285: Refund Authority. Any entity that is not a public utility (including an entityreferred to under Section 201(f) of the Federal Power Act) and enters into a short-term sale ofelectricity would be subject to the FERC refund authority. A short-term sale would include anyagreement to the sale of electric energy at wholesale that is for a period of 31 days or less. Thissection would not apply to electric cooperatives, or any entity that sells less than 8 million megawatthours of electricity per year. FERC would have refund authority over voluntary short-term sales ofelectricity by Bonneville Power Administration if the rates charged are unjust and unreasonable. FERC would have authority over all power marketing administrations and the Tennessee ValleyAuthority to order refunds to achieve just and reasonable rates. Refund authority was provided forin the House-passed H.R. 6 . Section 1286: Sanctity of Contract. Upon determining that failure to take action would becontrary to protection of the public interest, FERC would be authorized to modify or abrogate anycontract entered into after enactment of this section. FERC would not be able to abrogate or modifycontracts that expressly provide for a standard of review other than the public interest standard. Asimilar provision was included in the House-passed H.R. 6 . Section 1287: Consumer Privacy and Unfair Trade Practices. The Federal TradeCommission would be authorized to issue rules to prohibit slamming and cramming. Slammingoccurs when an electric utility switches the customer's electric provider without the consumer'sknowledge. Cramming occurs when an electric utility adds additional services and charges to acustomer's account without permission of the customer. If the Federal Trade Commission determinesthat a state's regulations provide equivalent or greater protection, then the state regulations wouldapply in lieu of regulations issued by the Federal Trade Commission. The House-and Senate-Passed H.R. 6 would have required the Federal Trade Commission to issue rules to prohibitslamming and cramming. Section 1291: Merger Review Reform and Accountability. Within 180 days of enactment,the Secretary of Energy would be required to transmit to Congress a study on whether FERC'smerger review authority is duplicative with other agencies' authority and that would includerecommendations for eliminating any unnecessary duplication. FERC would be required to issuean annual report to Congress describing all conditions placed on mergers under section 203(b) of theFederal Power Act. FERC would also be required to include in its report whether such a conditioncould have been imposed under any other provision of the Federal Power Act. A similar provisionwas included in the House-passed H.R. 6 . Section 1292: Electric Utility Mergers. The Federal Power Act would be amended to giveFERC review authority for transfer of assets valued in excess of $10 million. FERC would berequired to give state public utility commissions and governors reasonable notice in writing. FERCwould be required to establish rules to comply with this section. A similar provision was includedin the Senate-passed H.R. 6 . Section 1295: Definitions. The definitions for ""electric utility"" and ""transmitting utility""under the Federal Power Act would be amended. Definitions for the following terms would beadded to the Federal Power Act: electric cooperative, regional transmission organization,independent system operator, and commission. Section 1297: Conforming Amendments. The Federal Power Act would be amended toconform with this title. Sections 1300-1366. These sections are not addressed in this report. For information onthese sections, see CRS Report RL32042, Energy Tax Incentives in H.R. 6: TheConference Agreement as Compared with the House Bill and Senate Amendment . Section 1401: Denali Commission. Established in 1998 by P.L. 105-277 , the DenaliCommission is a federal-state partnership designed to provide critical utilities, infrastructure, andeconomic support throughout Alaska. The conference report would authorize up to $5 millionannually to the Commission during FY2005-FY2011 for the Power Cost Equalization Program. Thelegislation also would make available up to $50 million annually during the period FY2004-FY2013,drawing upon federal royalties, rents, and bonuses from oil and gas leases in the NationalPetroleum Reserve in Alaska (NPR-A). This funding must be appropriated. These funds wouldbe used, among other purposes, for energy generation and development ranging from alternativesources to fossil fuels. Section 1402: Rural and Remote Community Assistance. This section encourages grantsand loans to help rural communities where the electricity cost per kilowatt-hour is 150% of thenational average, grants and loans to the Denali Commission for similar purposes, and grants forareas where fuel cannot be shipped by surface transportation. Section 1411: Royalty Payments Under Certain Leases. The lessee of a ""covered leasetract"" off the coast of Louisiana would be allowed to withhold royalties due to the United States ifit paid the state of Louisiana 44 cents for every dollar of the federal royalty withheld. This royaltyrelief would end when certain drainage claims were satisfied. This provision was taken from theHouse bill. The date that this section takes effect is changed from 2004 to 2008. Section 1412: Domestic Offshore Energy Reinvestment. This would add a new Section32 at the end of the Outer Continental Shelf Lands Act (43 U.S.C. 1331 et. seq.) to return a portionof the federal revenues from offshore energy activities to affected coastal states to fund specifiedactivities. Representatives of states with offshore energy development have been seeking to returna significant portion of the federal revenues generated to these states, and particularly the coastalareas within these states that may be more affected by onshore and near-shore activities that supportthat development. Proponents of these proposals look to the rates at which funds are given tojurisdictions where energy development occurs within those jurisdictions on federal lands, and seekrevenues that will help coastal states respond to adverse onshore effects of offshore energydevelopment. Coastal destruction has received more attention in Louisiana, where many squaremiles of wetlands are being lost to the ocean each year. A federal program to address the impacts of coastal energy development was enacted duringthe energy crisis of the late 1970s. Called the Coastal Energy Impact Assistance Program, it operatedbriefly, providing loans and grants to states through the federal Coastal Zone Management Program. Current Law. There is no comparable program operating under in current law. Conference Agreement. The conference agreement would create a new Domestic OffshoreEnergy Reinvestment Program. The program would be funded from a new Secure EnergyReinvestment Fund. The fund would receive deposits of all qualified revenues from energy activitieson the outer continental shelf (OCS). All spending from the fund would be subject toappropriation. These revenues would include $35 million in royalty income each year, plus allroyalty income above a specified amount that would generally increase annually (starting at $3.455billion in FY2004 and ending at $5.120 billion in FY2013), bonus bid income above $1 billion eachyear, interest income earned by the fund, authorized appropriations of up to $500 million annually,and repayments made because a recipient did not follow an approved plan when spending the money. If the royalty income were inadequate, deposits into this fund and two other federal funds thatalready receive money from this source (Land and Water Conservation Fund and HistoricPreservation Fund) would be reduced by the same proportion. The Congressional Budget Office hasreportedly estimated that the fund would total about $1 billion, and that Louisiana would receivealmost 50% of this amount. However, any changes in assumptions could make the estimate varygreatly. Coastal states where energy activities occur offshore and coastal political subdivisions inthose states would be eligible to receive money from the fund. Eligible states and politicalsubdivisions are defined in the legislation. Allocations among eligible states would be determinedby a formula that accounts for energy revenues generated offshore in federal waters that lie betweenoutward extensions of the state's lateral boundaries over the past 10 years. Each coastal state is topass along 35% of the total it receives to eligible coastal political subdivisions, with the allocationamong these subdivisions in each state to be based on a formula that considers population, lengthof coastline, distance from leased tracts, and amount of outer continental shelf support activitieswithin that subdivision. Each state could use these funds to implement a plan it develops that would improveenvironmental quality and address the impacts of offshore energy activities. All plans must beapproved by the Secretary of the Interior before states could receive funds. Plans must describe howrecipients will evaluate the effectiveness of their implementation efforts. Each eligible state withan approved plan would receive at least 5% of the total available amount each year. Authorized usesof the funds would be limited to (1) conserving, protecting or restoring coastal areas, includingwetlands; (2) mitigating damage to or protecting fish, wildlife, or natural resources; (3) payingreasonable planning assistance and administrative costs; (4) implementing federally approved plansor programs to minimize the effects of natural disasters, and; (5) funding onshore infrastructure andpublic service projects that mitigate impacts of outer continental shelf activities. Revisions andamendments to plans would have to be approved by the Secretary. In addition, a new coastalrestoration program would be established using 2% of the funds available each year to assess theeffects of coastal habitat restoration techniques and develop new technologies, develop improvedmodels to predict ecosystem change, and identify economic options to address socio-economicconsequences of coastal degradation. This program would be administered by the Secretaries of theInterior and Commerce. In addition to the 2% funding, an appropriation of $10 million annuallywould be authorized. Policy Context. This is the most recent of repeated efforts to allocate a portion of federaloffshore oil and gas revenues to coastal states to assist them in addressing the impacts of theseactivities. Recent Congresses, starting with the 105th, considered numerous similar legislativeproposals. These proposals came to be known as CARA, or the Conservation and Reinvestment Act. In the 106th Congress, the House passed a version of CARA on May 11, 2000 ( H.R. 701 ). Some of these proposals were also reflected in the Clinton Administration's Lands LegacyInitiative proposal in 2000, and also a one-time $150 million appropriation provided in the FY2001Commerce appropriations legislation ( P.L. 106-553 ) for coastal impact assistance. Support for the CARA proposals, which would also have funded many related federal naturalresource protection programs, grew as the deficit of the early and mid-1990s was replaced byforecasts of a surplus, as protecting natural resources came to be viewed as part of the effort toaddress sprawl, and as efforts and support to secure federal funding for coastal resource protectionand restoration efforts grew. With the replacement of the surplus forecast with deficit forecasts andchanging national priorities since the 9/11 terrorist attacks, broad support for wide-ranginglegislation like CARA has declined, but interest has remained in returning a portion of the moneycurrently paid to the federal government by private companies leasing offshore areas to thoselocations most affected by the offshore activity. Sections 1431-1434: Changes to Board of Directors and Staff Appointments. Currently,three people are appointed by the President to serve on the Tennessee Valley Authority (TVA) Boardfor nine-year terms. The President also designates the chairman. Historically, the board membershave been involved in the day-to-day operation of TVA. The conference bill would establish a ChiefOperating Officer (CEO), who would have the authority to offer competitive salaries to topexecutives. The number of presidential appointments to the TVA Board would expand to nine;however, the term length would be shortened to five years, and board members would meet quarterlyto serve principally in an oversight function. The board members would designate the chairman. Section 1441: Continuation of Transmission Security Order. On August 28, 2003, theSecretary of Energy issued Order No. 202-03-2, allowing the Cross Sound Cable betweenConnecticut and Long Island to begin transmitting electric power. The conference bill would requirethe order to remain in effect unless rescinded by federal statute. Section 1442: Review of Agency Determinations on Gas Projects. This section wouldamend the Natural Gas Act, giving the D.C. Circuit Court of Appeals exclusive jurisdiction overdisputes involving ""unreasonable delay"" of a natural gas pipeline project certificated by FERC. Unreasonable delay would mean the failure of a permitting agency to take action within a year afterthe date of filing for the permit in question, or within 60 days after the issuance of a FERCcertificate. There is no explicit timeline in existing law for issuance of ancillary permits andlicenses, and that would consolidate authority in one court. This fast-tracking measure wouldaddress delays occurring after FERC had issued a certificate giving a pipeline project the go-ahead.The provision is directed at delays by other agencies in issuing environmental permits and otherapprovals needed to begin construction of a certificated project. Section 1443: Attainment Dates for Downwind Ozone Nonattainment Areas. Thissection, which was not in the House or Senate versions of the bill but was added during theconference, would extend Clean Air Act deadlines for areas that have not attained ozone air qualitystandards if upwind areas ""significantly contribute"" to their nonattainment. Under the 1990 CleanAir Act Amendments ( P.L. 101-549 ), ozone nonattainment areas were classified in one of fivecategories: Marginal, Moderate, Serious, Severe, or Extreme. Areas with higher concentrations ofthe pollutant were given more time to reach attainment. In return for the additional time, they wererequired to implement more stringent controls on emissions. Failure to reach attainment by thespecified deadline was to result in reclassification of an area to the next higher category and theimposition of more stringent controls. Areas such as Dallas-Fort Worth, for example, classified asSerious, were required to reach attainment by 1999. If they did not do so, the law required that theybe reclassified (or ""bumped up"") to the Severe category, with a new deadline of 2005, and morestringent controls. For a variety of reasons, EPA has generally not reclassified areas when they failed to reachattainment by the statutory deadlines. In several cases, the agency granted additional time to reachattainment on the grounds that a significant cause of the area's continued nonattainment waspollution generated outside the area and transported into it by prevailing winds. EPA was sued overits failure to bump up five of these areas; in the first three cases decided (Washington, D.C., St.Louis, and Beaumont-Port Arthur, Texas), the agency lost. As a result, EPA has taken steps toreclassify the three areas. The conference bill would roll back these reclassifications and extend attainment deadlinesin areas affected by upwind pollution to the date on which the last reductions in pollution necessaryfor attainment in the downwind area are required to be achieved in the upwind area. While this datemight vary, it would appear to be 2004, 2005, or 2007 in most areas affected by the current standard. The language in the conference bill may give EPA flexibility to extend the deadlines beyond thosedates, however, and it would also apply to the agency's new standard for average ozone levels duringan eight-hour period. Deadlines for attainment of the 8-hour ozone standard have not yet beenestablished, so it is difficult to say how this section might affect them. Section 1444: Energy Production Incentives. Congress may regulate interstate commerceunder Article 1, Section 8, Clause 3 (the Commerce Clause) of the Constitution. The states may notunduly burden interstate commerce even in the absence of federal regulation. However, Congressmay expressly authorize the states to take an action that would otherwise be an unconstitutionalburden on interstate commerce. State tax incentives that offer benefits solely to energy producedwithin the state may, depending on their design, raise constitutional concerns. The conference billwould expressly authorize the states to offer certain tax incentives that may otherwise be animpermissible burden on interstate commerce. Under the bill, the states would be allowed to providetax incentives for the in-state production of (1) electricity from in-state coal burned at a power plantusing clean coal technology, (2) electricity from renewable sources, and (2) ethanol. Section 1445: Use of Granular Mine Tailings. This section, which was added inconference, amends the Solid Waste Disposal Act (SWDA, 42 U.S.C. 6961 et seq.) and affects onlythe Tar Creek Mining District. Located in northeastern Oklahoma, Tar Creek is a former lead andzinc mining area of approximately 40 square miles and is one of the largest Superfund hazardouswaste cleanup sites. The mine tailings (residue, referred to as ""chat"") are deposited in hundreds ofpiles and ponds in the area, and contain lead and other heavy metals. Residential communities arelocated among the piles, some of which are nearly 200 feet high, and approximately 25% of thechildren living on the site have elevated lead concentration levels in their blood, according to aMarch 2000 EPA report. (14) The conference bill would direct the EPA Administrator to establish criteria for the safe andenvironmentally protective use of the granular mine tailings for cement or concrete projects, and forfederally funded highway construction projects. The criteria would include an evaluation of whetherto establish numerical standards for the concentration of lead and other hazardous substances in thetailings, and EPA would be required to consider their current and past use as an aggregate forasphalt, as well as the environmental and public health risks and benefits of their use intransportation projects. Section 1501: Renewable Content of Motor Vehicle Fuel. Section 1501 would require theuse of renewable fuel in gasoline. Renewable fuels include ethanol, biodiesel, and natural gasproduced from landfills and sewage treatment plants. The conference report would require the useof 3.1 billion gallons of renewable fuel in 2005, increasing to 5.0 billion gallons in 2012. After2012, the percentage of renewable fuel in gasoline would be required to equal the percentage in2012. The Environmental Protection Agency would be required to promulgate regulations for thegeneration and trading of credits between entities; in this manner refiners and blenders who couldnot meet the requirement would be able to purchase credits from those refiners or blenders whoexceeded their requirement. This provision is similar to provisions in the House and Senate versions of H.R. 6 . The House version, however, would have required only 2.7 billion gallons in 2005, increasing to5.0 billion gallons in 2015. The Senate version would have required 2.3 billion gallons in 2004,increasing to 5.0 billion gallons in 2012. Ethanol production was approximately 2.1 billion gallonsin 2002. Policy Context. The Clean Air Act Amendments of 1990 established the ReformulatedGasoline (RFG) program. Among its provisions is a requirement that RFG contain oxygen. The twomain ways to meet the requirement are the use of MTBE and ethanol. However, MTBE (methyltertiary butyl ether) has been found to contaminate groundwater, and there is interest in banning thesubstance (see Sec. 1504). Because some states have acted to limit the use of MTBE, and becauseof the potential federal ban, there is interest in eliminating the oxygen standard as well (see Sec.1506). The ethanol industry has benefitted significantly from the oxygen requirement, and some areconcerned about the future of ethanol in the absence of the requirement. Further, proponents of thefuel see ethanol use as a way to limit petroleum consumption and dependence on foreign oil. Thus,the interest in establishing a renewable fuels standard. However, opponents of ethanol have raisedconcerns that the fuel is too costly, that the efficiency of the ethanol fuel cycle is questionable, andthat the potential for groundwater contamination by ethanol-blended fuels has not been fully studied. Section 1502: Fuels Safe Harbor . This section would provide a ""safe harbor"" for renewablefuels and fuels containing MTBE (i.e., such fuels could not be deemed defective in design ormanufacture by virtue of the fact that they contain renewables or MTBE). The effect of thisprovision would be to protect anyone in the product chain, from manufacturers to retailers, fromliability for cleanup of MTBE and renewable fuels or for personal injury or property damage basedon the nature of the product (a legal approach that has been used in California to require refinersto shoulder liability for MTBE cleanup). Were liability for manufacturing and design defects ruledout, plaintiffs would need to demonstrate negligence in the handling of such fuels to establishliability -- a more difficult legal standard to meet. The conference version provides a safe harbor for renewable fuels, MTBE, and fuelscontaining them, as did the House bill. The Senate bill did not include MTBE, or fuels containingit, in the safe harbor. The conference version also differs from the House- and Senate-passed billsin setting an effective date of September 5, 2003, for the safe harbor, rather than the date ofenactment. This effective date would protect oil and chemical industry defendants from defectiveproduct claims in about 150 lawsuits that were filed in 15 states after that date. Section 1502 (1503) : MTBE Transition Assistance. This section would amend the CleanAir Act to authorize $2 billion ($250 million in each of FY2005-FY2012) for grants to assistmerchant U.S. producers of MTBE in converting to the production of other fuel additives (includingrenewable fuels), unless EPA determines that such fuel additives may reasonably be anticipated toendanger public health or the environment. Both the House and Senate versions of the billauthorized a smaller program ($750 million). Appropriations would remain available until expended. Sections 1503-1504 (1504-1505) : Ban on the Use of MTBE. The use of MTBE in motorvehicle fuel would be prohibited after December 31, 2014, except in states that specifically authorizeits use. In the Senate version of the bill, a ban would have been implemented four years after the dateof enactment; there was no ban in the House bill. EPA could allow MTBE in motor vehicle fuel inquantities up to 0.5% in cases the Administrator determines to be appropriate (Sec. 1503 (1504) ) . The bill would also allow the President to make a determination, not later than June 30, 2014, thatthe restrictions on the use of MTBE should not take place. The National Academy of Sciences wouldconduct a review of MTBE's beneficial and detrimental effects on environmental quality or publichealth or welfare, including costs and benefits by May 31, 2014 (Sec. 1504 (1505) ) . Section 1505 (1506) : Elimination of Oxygen Requirement and Maintenance of ToxicEmission Reductions. This section would amend the Clean Air Act to eliminate the requirementthat reformulated gasoline contain at least 2% oxygen. This requirement has been a major stimulusto the use of MTBE. The provision would take effect 270 days after enactment, except in California,where it would take effect immediately upon enactment. The section would also amend the Clean Air Act to require that each refinery or importer ofgasoline maintain the average annual reductions in emissions of toxic air pollutants achieved by thereformulated gasoline it produced or distributed in 1999 and 2000. This provision is intended toprevent backsliding, since the reductions actually achieved in those years exceeded the regulatoryrequirements. A credit trading program would be established among refiners and importers foremissions of toxic air pollutants. In addition, the section would require EPA to promulgate final regulations to controlhazardous air pollutants from motor vehicles and their fuels by July 1, 2004. It would also eliminatethe less stringent requirements for volatility applicable to reformulated gasoline sold in northernstates, by applying the more stringent standards of VOC (15) Control Region 1 (southern states). Sections 1506-1507 (1507-1508) : Analyses and Data Collection. EPA would be requiredto publish an analysis of the effects of the fuels provisions in the Clean Air Act on air pollutantemissions and air quality, within five years of enactment (Sec. 1506 (1507) ) . DOE would berequired to collect and publish monthly survey data on the production, blending, importing, demand,and price of renewable fuels, both on a national and regional basis (Sec. 1507 (1508) ) . Section 1508 (1509) : Reducing the Proliferation of State Fuel Controls. Section 211 ofthe Clean Air Act allows states to establish their own fuel standards with approval from EPA. Theconference report would bar the EPA Administrator from approving a state fuel restriction unlessthe Administrator, after consultation with the Secretary of Energy, determined that the fuel standardwould not cause fuel supply disruptions or adversely affect the ability to produce fuel for nearbyareas in other states. Section 1509 (1510) : Fuel System Requirements Harmonization Study. The EPAAdministrator and the Secretary of Energy would be required to study all federal, state, and localmotor fuels requirements. They would be required to analyze the effects of various standards onconsumer prices, fuel availability, domestic suppliers, air quality, and vehicle emissions. Further,they would be required to study the feasibility of developing national or regional fuel standards. Thisprovision is similar to provisions in the House and Senate versions of the bill. Section 1510 (1511) : Commercial Byproducts from Municipal Solid Waste andCellulosic Biomass Loan Guarantee Program. The Secretary of Energy would be required toestablish a loan guarantee program for the construction of facilities to produce fuel ethanol and othercommercial byproducts from municipal solid waste and cellulosic biomass. This provision is similarto provisions in the House and Senate versions, except that the House and Senate versions appliedonly to municipal solid waste (not cellulosic biomass). Section 1511 (1512) : Bioconversion Resource Center. Subsection (b) would authorize $4million annually for FY2004 through FY2006 for the development of a resource center at theUniversity of Mississippi and the University of Oklahoma. The center would focus on thedevelopment of bioconversion technology using low-cost biomass for the production of ethanol. Subsection (c) would authorize $25 million annually for FY2004 through FY2008 for research,development, and implementation of renewable fuel production technologies in states with lowethanol production. Section 1512 (1513) : Cellulosic Biomass and Waste-Derived Ethanol ConversionAssistance. The conference report would allow the Secretary of Energy to provide grants for theconstruction of ethanol plants. To qualify, the ethanol must be produced from cellulosic biomass,municipal solid waste, agricultural waste, or agricultural byproducts. A total of $750 million wouldbe authorized for FY2004 through FY2006. Neither the House nor the Senate version contained anysimilar provision. Section 1513 (1514) : Blending of Compliant Reformulated Gasolines. This provisionwould allow reformulated gasoline (RFG) retailers to blend batches with and without ethanol as longas both batches were compliant with the Clean Air Act. In a given year, retailers would be permittedto blend batches over any two 10-day periods in the summer months. Currently, retailers must draintheir tanks before switching from ethanol-blended RFG to non-ethanol RFG (or vice versa). TheHouse and Senate versions contained no similar provision. Sections 1521-1533: Underground Storage Tank Provisions. Title XV, Subtitle B, wouldmake extensive amendments to Subtitle I of the Solid Waste Disposal Act, to enhance the leakprevention and enforcement provisions of the federal underground storage tank regulatory program,and to broaden the allowable uses of the Leaking Underground Storage Tank (LUST) Trust Fund.The conference report essentially incorporates the language of H.R. 3335 , theUnderground Storage Tank Compliance Act of 2003, which shares many similarities withSenate-passed S. 195 . The provisions would add new tank inspection (Sec. 1523) andoperator training requirements (Sec. 1524) ; prohibit fuel delivery to ineligible tanks (Sec. 1527) ;expand underground storage tank (UST) compliance requirements for federal facilities (Sec. 1528) ;and require EPA, with Indian tribes, to develop and implement a strategy to address releases on triballands (Sec. 1529) . The provisions also would authorize states to use funds from the LUST Trust Fund to helpUST owners or operators pay the costs of remediating tank leaks in cases where the cost of cleanupwould significantly impair the ability of the owner or operator to continue in business (Sec. 1522) . EPA and states also would be authorized to use LUST funds to remediate oxygenated fuelcontamination (Sec. 1525) and conduct inspections and enforce federal and state UST releaseprevention and detection requirements (Sec. 1526) . Section 1531 would authorize LUST Trust Fund appropriations of $200 million annually,FY2004 through FY2008, for remediating tank leaks generally, and another $200 million annuallyfor the same period for responding to leaks containing methyl tertiary butyl ether (MTBE) or otheroxygenated fuel additives (e.g., ethanol). (Other MTBE-related provisions are discussed above inSubtitle A.) Conforming and technical amendments are also included (Secs. 1532-1533) . The House version of H.R. 6 would have authorized the use of $850 millionfrom the LUST Trust Fund for cleaning up underground storage tank leaks of fuels containingoxygenates (e.g., MTBE and ethanol). The Senate version of H.R. 6 proposed to authorizethe appropriation of $200 million from the Trust Fund for cleaning up MTBE and other ether fuelcontamination (from tanks and other sources). The Senate bill also would have authorized the useof LUST funds for enforcing the UST leak prevention program, and authorized new research andtechnical assistance programs. Section 1601: Study on Inventory of Petroleum and Natural Gas Storage. The Secretaryof Energy would have to report to Congress within a year of enactment on the amount of storagecapacity for petroleum and natural gas. While the oil and gas industry is subject to broad reportingrequirements under a variety of laws, this language would call for a comprehensive study of thenation's storage capability and the role it plays in the marketplace. The relationship between storagecapacity and price volatility could be significant in the current context of oil and natural gas markets-- which are experiencing another winter price spike. Section 1602: Natural Gas Supply Shortage Report. Within six months of enactment, theSecretary of Energy would be charged with preparing a report on natural gas supply and demand. Thereport should contain recommendations on policies that would maintain the supply-demand balancein a growing market to provide reasonable and stable prices, encourage energy conservation anddevelopment of alternative energy sources, reduce pollution, and improve access to domestic naturalgas supplies. Section 1603: Split-Estate Federal Oil and Gas Leasing and Development Practices. The Secretary of the Interior would conduct a review of how management practices by federalsubsurface oil and gas development activities affect privately owned surface users. The review woulddetail the rights and responsibilities of surface and subsurface owners, compare consent provisionsunder the Surface Mining Control and Reclamation Act of 1977 with provisions for oil and gasdevelopment, and make recommendations that would address surface owner concerns. Section 1604: Resolution of Federal Resource Development Conflicts in the PowderRiver Basin. The Secretary of the Interior would report to Congress on plans to resolve conflictsbetween development of coal and coalbed methane in the Powder River Basin. Section 1605: Study of Energy Efficiency Standards. DOE would be directed to have theNational Academy of Sciences study whether the goals of energy efficiency standards are best servedby focusing measurement at the site (energy end-use) or at the source (the full fuel cycle). Thisprovision relates to a previous Executive Order, which found that federal agencies should get credittoward meeting energy efficiency goals even where ""source energy use declines but site energy useincreases."" (16) Section 1606: Telecommuting Study. DOE would be directed to study and report on theenergy conservation potential of widespread adoption of telecommuting by federal employees. Inthis effort, DOE would be required to consult with the Office of Personnel Management, GeneralServices Administration, and National Telecommunications and Information Administration. Section 1607: LIHEAP Report. The Department of Health and Human Services (HHS)would be directed to report on how the Low-Income Home Energy Assistance Program could beused more effectively to prevent loss of life from extreme temperatures. In this effort, HHS wouldbe directed to consult with state officials. Section 1608: Oil Bypass Filtration Technology. DOE and EPA would be required tojointly study the benefits of oil bypass filtration technology in reducing demand for oil and protectingthe environment. This study would include consideration of its use in federal motor vehicle fleetsand an evaluation of products and manufacturers. Section 1609: Total Integrated Thermal Systems. DOE would be directed to study thepotential for integrated thermal systems to reduce oil demand and to protect the environment. Also,DOE would study the feasibility of using this technology in Department of Defense and other federalmotor vehicle fleets. Section 1610: University Collaboration. DOE would be directed to report on the feasibilityof promoting collaboration between large and small colleges through grants, contracts, andcooperative agreements for energy projects. DOE would also be directed to consider providingincentives for the inclusion of small colleges in grants, contracts, and cooperative agreements. Thisprovision was in the House bill. Section 1611: Reliability and Consumer Protection Assessment. Within five years ofenactment, and every five years thereafter, FERC would be required to assess the effects of electriccooperative and government-owned utilities' exemption from FERC ratemaking regulation undersection 201(f) of the Federal Power Act. If FERC found that the exemption resulted in adverseeffects on consumers or electric reliability, FERC would be required to make recommendations toCongress. Table 1. Authorizations in H.R. 6 Conference Report and S. 2095 (in millions of dollars)Inthis table, text in italics indicates subcategories. Changes made by S. 2095 are in bold. Source: Table prepared by CRS using the text of the Conference agreement of H.R. 6. Table Notes: This table shows funding that would be authorized including loans but not loan guarantees under the conference agreement for H.R. 6. The section number in the far left hand column is location in the bill of the authorizing language. When an activity is described a separatesection of the bill from where it is authorized, it is indicated in parentheses after the program title in column two. The fourth column from the right, labeled ""FY2004 -FY2008,"" provides a five-year subtotal for each line. This column has been included sothat amounts may be compared to similar five-year subtotals shown in the authorization tables for the House and Senate bills in CRS Report RL32033, Omnibus Energy Legislation (H.R. 6): Side-by-side Comparison of Non-tax Provisions. Items that have been changed in S. 2095 are shown in bold. In the respective column, the old amount is shown in brackets. In theendnotes, details that were dropped from S. 2095 are placed in brackets and new information is in bold. ss. Such sums as may be necessary. a. Lump sum. No fiscal year indicated. Endnotes: 1. Sec. 756. Funds go to the Environmental Protection Agency. 2. Sec. 771. Funds go to the National Highway Traffic Safety Administration in the Department of Transportation. 3. Sec. 949. [Plus up to $150 million per fiscal year for FY2004 - FY2013 from federal oil and gas leases issued under the Outer ContinentalShelf Lands Act (OCS) and the Mineral Leasing Act would be deposited into the fund. Revenues fluctuate year-to-year as a result of oil andgas prices and lease sales.] This provision was dropped in S. 2095. 4. Sec. 1401. Denali Commission also would receive up to $50 million per fiscal for FY2004 - FY2013, [from the federal share of federal oiland gas leases in the National Petroleum reserve in Alaska (NPR-A).] Funding is now subject to appropriations. 5. Sec. 1412. [Secure Energy Reinvestment Fund also would be funded from FY2004 to FY2013 by royalties under the Outer Continental ShelfLands Act.] An appropriation must be passed before funding may be drawn. 6. Sec. 1412. [Coastal Restoration and Enhancement would also receive 2% of amount deposited into the Secure Energy Reinvestment Fundper fiscal year.] An appropriation must be passed before funding may be drawn. ","House and Senate conferees approved an omnibus energy bill ( H.R. 6 , H.Rept.108-375 ) on November 17, 2003, and the House approved the measure the following day (246-180).However, on November 21, 2003, a cloture motion to limit Senate debate on the conference reportfailed (57-40). On February 12, 2004, Senator Domenici introduced a revised version of the bill( S. 2095 ) with a lower estimated cost and without a controversial provision on the fueladditive MTBE. Major non-tax provisions in the conference measure and S. 2095 include: Ethanol. An increase in ethanol production to 3.1 billion gallons annually by 2005 and 5billion gallons by 2012 would be mandated. However, states could petition for a waiver if themandate would have severe economic or environmental repercussions, other than loss of revenueto the highway trust fund. MTBE. Methyl tertiary butyl ether (MTBE), a gasoline additive widely used to meet CleanAir Act requirements, has caused water contamination. The conference bill would ban the use ofMTBE by 2015 with some possible exceptions, provide funds for MTBE cleanup, and provideprotection for fuel producers and blenders of renewable fuels and MTBE from defective productlawsuits. The liability protection was not included in S. 2095 . Electricity. In part, the electricity section would repeal the Public Utility Holding CompanyAct (PUHCA) and establish mandatory standards for interstate transmission. Standard market design(SMD) would be remanded to the Federal Energy Regulatory Commission (FERC); no rule wouldbe allowed before the end of FY2006. Alaska Gas Pipeline. The bill would provide $18 billion in loan guarantees for constructionof a natural gas pipeline from Alaska to Alberta, where it would connect to the existing midwesternpipeline system. Energy Efficiency Standards. New statutory efficiency standards would be established forseveral consumer and commercial products and appliances. For certain other products andappliances, DOE would be empowered to set new standards. For motor vehicles, funding would beauthorized for the National Highway Traffic Safety Administration (NHTSA) to set CorporateAverage Fuel Economy (CAFE) levels as provided in current law. Energy Production on Federal Lands. Royalty reductions would be provided for marginaloil and gas wells on federal lands and the outer continental shelf. Provisions are also included toincrease access by energy projects to federal lands. For a discussion of the tax provisions in the bills, see CRS Issue Brief IB10054, Energy TaxPolicy . This report will not be updated."
"Congress continues to focus attention upon both medical innovation and the growing cost of health care. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, addresses each of these concerns. Through amendments to both the patent law and the food and drug law, the Hatch-Waxman Act established several practices intended to facilitate the marketing of generic pharmaceuticals while providing brand-name firms with incentives to i nnovate. Although Congress has since modified the basic framework of the Hatch-Waxman Act, both through direct amendments and the enactment of related legislation, potential legislative issues remain for congressional consideration. This report provides an overview of the Hatch-Waxman Act and identifies potential legislative issues. It begins by explaining the fundamentals of the patent acquisition process at the U.S. Patent and Trademark Office (USPTO) and patent litigation in the federal courts. The drug approval process at the Food and Drug Administration (FDA) is described next. The report then describes the 1984 judicial ruling in Roche Products, Inc. v. Bolar Pharmaceutical Co ., a case that called attention to the relationship between pharmaceutical innovation and competition. The report then describes the principal features of the Hatch-Waxman Act. These features include an expedited generic regulatory approval procedure; a patent term extension to compensate for regulatory approval delays; and a statutory exemption from patent infringement for firms seeking regulatory approval. The Hatch-Waxman Act also established specialized infringement litigation procedures with respect to certain pharmaceutical patents. The statute further created periods of ""regulatory exclusivity"" that protect an approved drug from competing applications for marketing approval under specified conditions. The report then reviews significant legislative amendments impacting the Hatch-Waxman Act. It closes with an identification of proposed amendments and other issues that may potentially be of legislative interest. Under the nation's patent laws, inventors may obtain patents on processes, machines, manufactures, and compositions of matter that are useful, novel, and nonobvious. An invention is judged as useful if it is minimally operable toward some practical purpose. To be considered novel within the patent law, an invention must differ from existing references that disclose the state of the art, such as publications and other patents. The nonobviousness requirement is met if the invention is beyond the ordinary abilities of a skilled artisan knowledgeable in the appropriate field. In order to be awarded a patent, an inventor must file a patent application with the USPTO. A patent application must include a specification that so completely describes the invention that skilled artisans are enabled to practice it without undue experimentation. The patent application must also contain distinct, definite claims that set out the proprietary interest asserted by the inventor. Trained personnel at the USPTO, known as ""examiners,"" review all applications to ensure that the invention satisfies the pertinent requirements of the patent law. If the USPTO believes that the application meets the statutory standards, it will allow the application to issue as a granted patent. At that time, the USPTO will assemble and publish the corresponding patent instrument, which includes the complete specification, claims, and prior art references considered during prosecution. Each patent ordinarily enjoys a term of 20 years commencing from the date the patent application was filed. Granted patents give the patentee the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Parties who engage in those acts without the permission of the patentee during the term of the patent can be held liable for infringement. The patentee may file a civil suit in federal court in order to enjoin infringers and obtain monetary remedies. Although issued patents enjoy a presumption of validity, accused infringers may assert that the patent is invalid or unenforceable on a number of grounds. Patents have the attributes of personal property and may be assigned or licensed to others. Since the 1962 Kefauver-Harris Drug Amendments, the Federal Food, Drug, and Cosmetic Act has prohibited the marketing of a ""new drug"" unless that drug meets certain safety and efficacy standards. A showing that a new drug is sufficiently safe and effective to allow it to be marketed ordinarily requires manufacturers to conduct clinical investigations of drugs. Such investigations generally occur over several stages, commencing with preclinical evaluation. The testing process begins in the company's laboratory, where scientists perform preliminary tests to determine whether the drug has any effect on a disease or its symptoms. For those compounds that merit further consideration following preclinical evaluation, the next step is the filing of an Investigational New Drug application (IND), at the FDA. The FDA evaluates the pre-clinical data and the proposed clinical trial design to determine whether to allow the IND and testing in humans. Clinical trials are ordinarily carried out in three phases that gather further evidence of the drug's safety and effectiveness. Once a new drug's clinical testing is complete, the sponsor prepares a New Drug Application (NDA) and submits it to the FDA for evaluation. An NDA includes the clinical trial results along with a description of the drug's manufacturing process and facilities. The agency considers three broad questions when reviewing an NDA: Whether the drug is safe and effective in its proposed use(s), and whether the benefits of the drug outweigh the risks. Whether the drug's proposed labeling (package insert) is appropriate, and what it should contain. Whether the methods used in manufacturing the drug and the controls used to maintain the drug's quality are adequate to preserve the drug's identity, strength, quality, and purity. As the agency has explained, an NDA ""is supposed to tell the drug's whole story, including what happened during the clinical tests, what the ingredients of the drug are, the results of the animal studies, how the drug behaves in the body, and how it is manufactured, processed and packaged."" FDA approval of an NDA allows the drug to be marketed to the public. The award of marketing approval by the FDA and the grant of a patent by the USPTO are formally distinct events that depend upon different criteria. For example, the USPTO could issue a patent on a drug that the FDA ultimately decides not to approve for marketing due to deleterious side effects. As well, the FDA could grant marketing approval to a safe and effective drug that was already described in the published literature and therefore not patentable. However, because brand-name firms ordinarily seek both marketing approval and patent protection, the practical relationship between these procedures was the subject of policy debate for many years. Many observers believe that the 1984 judicial decision in Roche Products, Inc. v. Bolar Pharmaceutical Co . hastened the pace of discussion in Congress. As noted previously, patent proprietors possess the right to exclude others from practicing the patented invention. Accused infringers may offer several defenses to avoid liability for patent infringement. One potential patent infringement defense consists of the so-called experimental use privilege. One nineteenth century court explained that it was ""well-settled that an experiment with a patented article for the sole purpose of gratifying a philosophical taste, or curiosity, or for mere amusement is not an infringement of the rights of the patentee."" Most patent attorneys observe that few infringers have successfully pled an experimental use defense, however. As a practical matter, infringement charges are only rarely brought against philosophers or amusement seekers. The venerable experimental use defense suggested an interesting possibility with the advent of marketing approval procedures before the FDA. When a competitor grew interested in marketing the generic equivalent of a drug patented by another, it might have wished to commence clinical trials and other procedures needed to obtain commercial marketing approval during the term of the other's patent. This procedure would allow the generic firm to market the drug as soon as possible—and ideally upon the date the patent expired. Whether the regulatory compliance activities of a generic drug manufacturer amounted to patent infringement or were exempted by the experimental use defense was an open legal question for many years. The 1984 decision of the Court of Appeals for the Federal Circuit in Roche v. Bolar resolved this question conclusively in favor of a finding of patent infringement. In that case, Roche Products, Inc. (Roche) marketed a prescription sleeping pill and owned a patent covering its active ingredient. During the term of Roche's patent, Bolar Pharmaceutical Co. (Bolar) began using the active ingredient to obtain data needed to file an NDA with the FDA. When Roche brought a patent infringement suit, the federal courts agreed that Bolar should be enjoined from using the active ingredient until Roche's patent expired. The courts explained that: Bolar's intended ""experimental"" use is solely for business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry. Bolar's intended use ... to derive FDA required test data is thus an infringement of the [Roche] patent. Bolar may intend to perform ""experiments,"" but unlicensed experiments conducted with a view to the adaptation of the patented invention to the experimentor's business is a violation of the rights of the patentee to exclude others from using his patented invention. It is obvious here that it is a misnomer to call the intended use de minimis . It is no trifle in its economic effect on the parties even if the quantity used is small. It is no dilettante affair.... We cannot construe the experimental use rule so broadly as to allow a violation of the patent laws in the guise of ""scientific inquiry,"" when that inquiry has definite, cognizable, and not insubstantial commercial purposes. The ruling in Roche v. Bolar , in combination with the requirement of marketing approval for new drugs under the Food, Drug, and Cosmetic Act, was perceived as leading to two distortions of the statutory patent term. First, patent term would continue to run whether or not the FDA had approved the claimed pharmaceutical for marketing. As a result, the period of time that the proprietor of a patent claiming a regulated drug actually could enjoy exclusivity could be quite significantly reduced. In effect, each day of delay associated with the FDA approval process amounted to a lost day of patent term. Second, under Roche v. Bolar , competitors that commenced activities necessary for regulatory approval before a patent had expired could be enjoined as patent infringers. This possibility was seen as a de facto period of exclusivity that the patent proprietor enjoyed beyond the actual term of the patent. The Roche v. Bolar decision was widely seen as the impetus for congressional enactment of the Drug Price Competition and Patent Term Restoration Act of 1984. Signed into law on September 24, 1984, that law has come to be known as the Hatch-Waxman Act. The new law was subsequently codified in Titles 15, 21, 28, and 35 of the U.S. Code. The Hatch-Waxman Act includes elaborate provisions governing the mechanisms through which a potential generic manufacturer may obtain marketing approval on a drug that has been patented by another. Although the Hatch-Waxman Act is a complex statute, observers have frequently noted that it presents a fundamental trade-off: In exchange for permitting manufacturers of generic drugs to gain FDA marketing approval by relying on safety and efficacy data from the brand-name firm's NDA, the brand-name firms receive a period of regulatory exclusivity and patent term extension. A review of the legislation's significant provisions follows. The Hatch-Waxman Act created a statutory exemption from certain claims of patent infringement. As codified in 35 U.S.C. §271(e)(1), this provision mandates: ""It shall not be an infringement to make, use, offer to sell, or sell within the United States a patented invention ... solely for uses reasonably related to the development and submission of information under a Federal Law which regulates the manufacture, use or sale of drugs or veterinary biological products."" This provision effectively overturned the Roche v. Bolar decision. As a result, generic manufacturers may commence work on a generic version of an approved drug any time during the life of the patent, so long as that work furthers compliance with FDA regulations. Prior to the introduction of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing generic versions of drugs that had previously been approved. The result was that a would-be generic drug manufacturer had to file its own NDA in order to market its drug. Some generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug. Because these sorts of studies were not available for all drugs, however, not all generic firms could file these so-called paper NDAs. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result is that some generic manufacturers were forced to prove independently that the drugs were safe and effective, even though their products were chemically identical to previously approved drugs. Some commentators believed that the approval of a generic drug was a needlessly costly, duplicative, and time-consuming process prior to the Hatch-Waxman Act. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval. As the introduction of generic equivalents often causes prices to decrease, the interest of consumers was arguably not being served through these observed costs and delays. The Hatch-Waxman Act created a new type of application for market approval of a pharmaceutical. This application, termed an ""Abbreviated New Drug Application"" (ANDA), may be filed at the FDA. An ANDA may be filed if the active ingredient of the generic drug is the bioequivalent of the approved drug. An ANDA allows a generic drug manufacturer to rely upon the safety and efficacy data developed by the original manufacturer. The Hatch-Waxman Act also continued the FDA's earlier ""paper NDA"" practice by establishing what has come to be known as a Section 505(b)(2) application. Such an application relies, at least in part, upon safety and efficacy data that the applicant did not itself develop, but rather is available in the published literature. ANDAs and Section 505(b)(2) applications may allow a generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. These two expedited marketing approval pathways also allow a generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire. All approved drug products, both brand name and generic, are listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations . This publication is commonly known as the ""Orange Book"" due to the color of its cover, although today most individuals likely view its contents through use of the Internet or the smartphone ""Orange Book Express"" app. The Orange Book uses a coded lettering system to identify those approved drugs the FDA considers therapeutically equivalent. The FDA considers those drugs with an ""A"" code to be therapeutically equivalent, while those with a ""B"" code have a documented bioequivalence problem. The Orange Book provides physicians, pharmacists, and patients with information to help them decide when therapeutically equivalent generic drugs can be substituted for brand-name products. The Orange Book also plays a role in the resolution of patent disputes. The Hatch-Waxman Act requires each holder of an approved NDA to list pertinent patents it believes would be infringed if a generic drug were marketed before the expiration of these patents. Would-be manufacturers of generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. In particular, the generic applicant must either file a so-called section viii statement or a patent certification. Section viii statements are appropriate when the applicant is seeking approval for a method-of-use that is not claimed in a patent listed in the Orange Book. Alternatively, the generic applicant must provide one of four certifications: 1. the brand-name firm has not filed any patent information with respect to that drug; 2. the patent has already expired; 3. the date on which the patent will expire; or 4. the patent is invalid or will not be infringed by the manufacture, use, or sale of the drug for which the ANDA is submitted. These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. A generic firm that files an ANDA including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires. A paragraph IV certification leads to additional possibilities, as described next. Under 35 U.S.C. §271(e)(2), the filing of an ANDA with a paragraph IV certification constitutes a ""somewhat artificial"" act of patent infringement. The Hatch-Waxman Act requires the ANDA applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against the ANDA applicant in federal district court. This charge of infringement under 35 U.S.C. §271(e)(2) is technical in nature. At this stage the generic manufacturer has done nothing more than request FDA approval to market a drug. If the patentee's charge of infringement is successful, however, it may prevent the marketing of that generic equivalent until the date the patent expires. If the patent owner brings a patent infringement charge against the ANDA applicant within 45 days of receiving notice from the ANDA applicant, then the Hatch-Waxman Act provides the patentee with a significant benefit. Under these circumstances the FDA must suspend approval of the ANDA until one of the following times: the date of the court's decision that the listed drug's patent is either invalid or not infringed; the date the listed drug's patent expires, if the court finds the listed drug's patent infringed; or subject to modification by the court, the date that is 30 months from the date the owner of the listed drug's patent received notice of the filing of a Paragraph IV certification. Congress intended that this latter, 30-month period would give the parties sufficient time to resolve their patent dispute before the ANDA applicant introduced its generic product to the market. This period of time, commonly called the ""30-month stay,"" is effectively the equivalent of a preliminary injunction that is awarded against the generic drug company for the stipulated period of time. The 30-month stay is awarded automatically by statute, however, provided that the brand-name drug company has timely followed the appropriate procedures. In particular, the brand-name drug company need not make any of the usual showings required for a preliminary injunction. The Hatch-Waxman Act also provides for the extension of patent term. Ordinarily, patents may last as long as 20 years from the date the patent application is filed. The Hatch-Waxman Act provides that for pharmaceutical patents, the term of one patent may be extended for a portion of the time lost during clinical testing. If, as is often the case, the patent proprietor owns more than one patent covering a drug, it must choose one to be eligible for term extension. In particular, the patent holder is entitled to have restored to the patent term one-half of the time between the IND application and the submission of an NDA, plus the entire period spent by the FDA approving the NDA. The statute sets some caps on the length of the term restoration. The entire patent term restored may not exceed five years. Further, the remaining term of the restored patent following FDA approval of the NDA may not exceed 14 years. The Hatch-Waxman Act also provides that the patentee must exercise due diligence to seek patent term restoration from the USPTO, or the period of lack of diligence will be offset from the augmented patent term. As a simplified example, suppose that four years passed between the filing of the IND and NDA, and another two years passed between the filing of the NDA and its approval. The period of extension would be (4÷2) + 2 = 4 years. Patent term extension under the Hatch-Waxman Act does not occur automatically. The patent owner must file an application with the USPTO requesting term extension within 60 days of obtaining FDA marketing approval. The Hatch-Waxman Act includes provisions that create regulatory exclusivity for certain FDA-approved drugs. The FDA administers these provisions by issuing approval to market a pharmaceutical to only a single entity. Stated differently, during the statutorily stipulated period of time, the FDA protects an approved drug from competing applications. A grant of regulatory exclusivity does not depend on the existence of patent protection. Indeed, it is possible that two completely different entities may own USPTO-granted patent rights, on one hand, and FDA-issued regulatory exclusivity, on the other. The Hatch-Waxman Act was not the first legislation to provide for a regulatory exclusivity. Two years earlier, Congress had approved the Orphan Drug Act in order to encourage firms to develop pharmaceuticals to treat rare medical conditions. Such drugs are called ""orphan"" drugs because firms may lack the financial incentives to ""adopt,"" or sponsor, products to treat small patient populations. The Orphan Drug Act established a seven-year term of market exclusivity for drugs determined to treat rare disease and conditions. Orphan drug exclusivity prevents the FDA from approving another marketing approval application for the same drug and same orphan indication. Expanding upon this concept, the Hatch-Waxman Act established a five-year exclusivity that is available to drugs that qualify as a new chemical entity (NCE). A drug is judged to be an NCE if the FDA has not previously approved that drug's active ingredient. During that five-year period of NCE exclusivity, the FDA may accept neither a Section 505(b)(2) application nor an ANDA for a drug product containing the same active moiety protected under the NCE exclusivity. The term of NCE exclusivity may be reduced to as little as four years if a generic firm files a paragraph IV ANDA. The Hatch-Waxman Act also provided for a three-year new clinical study exclusivity period. New clinical study exclusivity may be awarded with respect to either an NDA or a supplemental NDA that contains reports of new clinical studies conducted by the sponsor that are essential to FDA approval of that application. In contrast to NCE exclusivity, new clinical study exclusivity applies only to the use of the product that was supported by the new clinical study. The Hatch-Waxman Act further provided prospective manufacturers of generic pharmaceuticals with a reward for challenging the patent associated with an approved pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the first generic applicant to file a paragraph IV certification. Congress hoped that this entitlement would encourage generic applicants to challenge a listed patent for an approved drug product. As originally enacted, the term extension provisions of the Hatch-Waxman Act did not apply to patents claiming new animal drugs and veterinary biological products. The result was that although these products were subject to FDA marketing approval delays, patents claiming these products did not receive the benefit of term extension. Through the Generic Animal Drug and Patent Term Restoration Act, which became effective on November 16, 1988, Congress decided to open the term-restoration provisions of the Hatch-Waxman Act to veterinary drugs and biological products as well. Animal drug products primarily derived from recombinant DNA technology are expressly denied the benefit of patent term restoration, however. Section 111 of the Food and Drug Administration Modernization Act of 1997, titled the Better Pharmaceuticals for Children Act, aimed to increase the number of pharmaceuticals available for children. This statute provided for a six-month ""pediatric exclusivity"" to encourage drug manufacturers to conduct research concerning the effectiveness of their drugs in children. Pediatric exclusivity attaches to any children's drug products with the same ""active moiety""—that portion of the drug that causes its physiological or pharmacological reaction—as the previously approved drug. The effect of the pediatric exclusivity is, in essence, to add six months to the term of any patent or regulatory exclusivity that exists at the time the pediatric exclusivity is obtained. For example, the term of an NCE exclusivity would be extended to five years, six months. However, if the pediatric exclusivity is awarded later than nine months prior to the expiration of a particular intellectual right, its term is not extended. Although initially subject to a sunset provision, Congress made the pediatric exclusivity permanent in 2012 with the FDA Safety and Innovation Act. The product must be one for which studies on a pediatric population are submitted at the request of the Secretary of Health and Human Services. Note that the law does not require that a study be successful in demonstrating safety and effectiveness in a pediatric population in order to trigger the added six-month exclusivity period. The statute instead creates incentives for drug companies to conduct research and submit their results. Title XI of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), titled ""Access to Affordable Pharmaceuticals,"" introduced several changes to the original Hatch-Waxman Act. This law was designed to further decrease the time needed to bring generic pharmaceuticals to the marketplace. Congress principally crafted many of the new provisions for the purpose of discouraging perceived strategic behavior upon the part of both brand-name and generic drug companies said to delay the availability of generic drugs in the U.S. market. In particular, the MMA generally permits no more than one 30-month stay on FDA approval of drugs for which patents are listed in the Orange Book at the time of a paragraph IV ANDA or 505(b)(2) filing. Second, the MMA stipulates that in a situation where a patent holder does not file an infringement action within 45 days of notification of a paragraph IV ANDA, the ANDA applicant may request that a district court issue a declaratory judgment regarding the validity of the patent. Further, if the brand-name drug company launches a patent infringement suit against an ANDA applicant, the generic firm may file a counterclaim requesting that the patent holder modify or delete patent information listed in the Orange Book. The usual ground for such suits is that the listed patents do not claim the drug for which the NDA was approved. The MMA stipulates that no monetary damages are to be awarded in such suits. The MMA also provides that the 180-day generic exclusivity commences with the first commercial marketing of the generic drug. This exclusivity can be forfeited under specified circumstances, including the failure to market under specific time constraints, withdrawal of the ANDA, amendment of the ANDA's patent certification, the failure to obtain marketing approval from the FDA, the expiration of all patents, or the determination by the Federal Trade Commission (FTC) or the Assistant Attorney General that an agreement between the brand-name and generic firms violates antitrust laws. Multiple generic firms may qualify for the 180-day market exclusivity if they file a substantially complete ANDA on the same day. Finally, the MMA requires that certain agreements reached between brand-name companies and generic firms concerning the production, sale, or marketing of a pharmaceutical or a 180-day market exclusivity must be filed with the FTC and the Department of Justice within 10 days of the agreement. This measure was intended to allow these agencies to track ""reverse payment"" or ""pay-for-delay"" settlements, a subject that this report discusses below. The Food and Drug Administration Amendments Act (FDAAA) of 2007 incorporated provisions that allowed the FDA to grant NCE exclusivity to enantiomers of previously approved racemates. This legislation overturned the agency's previous view that a single enantiomer of a previously approved racemate contained a previously approved active moiety and was not a new chemical entity. The FDAAA only allows exclusivity to be awarded if the non-racemic drug is approved for a different use than the previously approved racemic one. In addition, approval of the non-racemic drug must be based upon different studies than the racemic one for exclusivity to be awarded. Following years of debate concerning the introduction of competitive biotechnology medicines, Congress approved the Biologics Price Competition and Innovation Act (BPCIA). The statute appears as Title VII of the Patient Protection and Affordable Care Act. Biologics, which are sometimes termed biopharmaceuticals or biotechnology drugs, have begun to play an increasingly important role in U.S. health care. Observers expressed concern that patent expirations on certain biologics might not be accompanied by the introduction of competing, lower-cost biologics in the marketplace. Of course, a similar analysis prompted the enactment of the Hatch-Waxman Act over a quarter-century ago. Many observers believed that the Hatch-Waxman's Act accelerated marketing approval provisions did not comfortably apply to biologics, due to those drugs' greater complexity, structural complexity, and method of manufacture. The BPCIA included three principal components. First, it created an expedited regulatory pathway for two sorts of follow-on products—""biosimilars"" and ""interchangeable"" biologics. Second, Congress established regulatory exclusivities that are available to brand-name and follow-on firms. Third, the legislation stipulates intricate procedures for identifying and resolving patent disputes with respect to follow-on biologics. Congressional concern over the spread of antibiotic-resistant ""superbugs"" led to the enactment of the Generating Antibiotic Incentives Now (GAIN) Act, enacted as Title VIII of the FDA Safety and Innovation Act. That statute allows the FDA to designate a drug as a ""qualified infectious disease product"" (QIDP) if it consists of an antibacterial or antifungal drug intended to treat serious or life-threatening infections. The GAIN Act stipulates that QIDPs include drugs that address drug-resistant tuberculosis, gram negative bacteria, and Staphylococcus aureus. Along with other measures intended to provide pharmaceutical and biotechnology companies with incentives to develop innovative antibiotics, the GAIN Act adds five years to the term of the new chemical entity, new clinical study, and orphan exclusivities for any QIDP. The statute stipulates that the five-year QIDP extension is cumulative with the pediatric exclusivity. As a result, a QIDP that qualified as a new chemical entity, and was also awarded a pediatric exclusivity, would be entitled to a data exclusivity period of ten years and six months. Since enacting the Hatch-Waxman Act, Congress has maintained a consistent interest in the role intellectual property rights play in the development of new pharmaceuticals and biologics. Congress frequently reconsiders whether the appropriate balance has been struck between providing financial incentives to innovators and encouraging the development of competition to limit economic cost to the public. This section addresses select legislation in the 114 th Congress. Similar themes are likely to be considered by future Congresses as well. The 2016 announcement that a brand-name firm would produce a generic version of its EpiPen® auto-injector renewed discussion of so-called ""authorized generics."" An ""authorized generic"" is a pharmaceutical that is marketed by or on behalf of a brand-named drug company, but is sold under a generic name. The brand-name firm may distribute the drug under its own auspices or via a license to a generic drug company. The price of this ""authorized copy"" is ordinarily lower than that of the brand-name drug. Some sources refer to authorized generics as ""branded,"" ""flanking,"" or ""pseudo"" generics. Authorized generics may be pro-consumer in that they potentially increase competition and lower prices, particularly in the short-term. They have nonetheless proven controversial. Authorized generics ordinarily enter the market at about the time the brand-name drug company's patents are set to expire. Some observers argue that such products may decrease the value of the potential 180-day market exclusivity for the first approved generic. This in turn may discourage independent generic firms both from challenging drug patents and from selling their own generic products. The Hatch-Waxman Act requires generic drug companies to prove that their proposed products are bioequivalent to the brand-name drug. Bioequivalence testing therefore requires that the generic firm use the brand-name product as a basis for comparison. Some generic firms have expressed concerns, however, that certain brand-name firms have refused to sell them samples of their drugs for use in developing competing products. The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2016, S. 3056 , addresses access to reference product samples when a brand-name product is subject to limited distribution channels—either voluntarily or via FDA-imposed ""Risk Evaluation and Mitigation Strategies (REMS)"" procedures. The bill would allow a generic or biosimilar firm to commence litigation in federal court in order to obtain a sample of a drug or biologic that is subject to a restricted distribution scheme so that it may obtain FDA approval of its competing product. At least six bills have been introduced in the 114 th Congress that would allow individuals to import lower-cost prescription drugs from foreign jurisdictions. The bills differ on the jurisdictions from which imports are permissible. H.R. 2228 and S. 122 , each titled the Safe and Affordable Drugs from Canada Act of 2015; along with H.R. 3513 and S. 2023 , each titled the Prescription Drug Affordability Act of 2015; would allow U.S.-approved drugs to be imported from approved Canadian pharmacies. H.R. 2623 , the Personal Drug Importation Fairness Act, would allow U.S.-approved drugs to be imported from Australia, Canada, Israel, Japan, New Zealand, Switzerland, South Africa, a member state of the European Union, or a country in the European Economic Area, as well as any other country determined by the Commissioner of Food and Drugs to have safety and efficacy standards at least as protective as the United States. Finally, S. 1790 , the Safe and Affordable Prescription Drugs Act of 2015, would allow U.S.-approved drugs to be imported from approved pharmacies located anywhere in the world. Congress continues to express interest in regulatory exclusivities. In the 114 th Congress, the Curb Opioid Misuse By Advancing Technology (COMBAT) Act of 2016, H.R. 5127 , would extend the three-year new clinical study exclusivity by 12 months if the new study was related to clinical abuse potential and the product's labeling characterized the drug's abuse-deterrent potential. The COMBAT Act would similarly extend the 180-day generic exclusivity by 60 days in such circumstances. On the other hand, the period of biologics exclusivity would be reduced from 12 to 7 years by the Price Relief, Innovation, and Competition for Essential Drugs (PRICED) Act, introduced as both H.R. 5573 and S. 3094 . Over the past 35 years, FDA-administered regulatory exclusivities have been growing in numbers, scope, complexity, and duration. The long history of congressional lawmaking has given rise to three types of patents: utility patents in 1790, design patents in 1842, and plant patents in 1930. In contrast, since 1982 Congress has established 15 sorts of regulatory exclusivity. Encouraging innovation through regulatory exclusivities, rather than through the patent system, arguably possesses certain advantages. The large number of industries affected by patents may make patent reform politically difficult. Fine tuning drug regulation rules may be more feasible. In addition, U.S. membership in the World Trade Organization requires that ""patents shall be available and patent rights enjoyable without discrimination as to the ... field of technology...."" This requirement of technological neutrality appears to prevent discrimination both against and in favor of drug patents. On the other hand, increasing reliance upon regulatory exclusivities may require greater legislative oversight and hold less regard for the public domain. Cases litigated under the auspices of the Hatch-Waxman Act have often ended with a settlement between the parties. In some of these cases, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a ""reverse"" payment. For over two decades, a number of courts of appeal have been called upon to analyze the antitrust implications of patent settlements between brand-name and generic firms within the shadow of the Hatch-Waxman Act. Facing somewhat different case specifics, the courts developed varying approaches to the issue. These distinctions were laid to rest by the 2013 Supreme Court opinion in Federal Trade Commission v. Actavis, Inc . The watershed Actavis decision ushered in a new era for antitrust review of reverse payment settlements. There, the Court held that the legality of reverse payment settlements should be evaluated under the ""rule of reason"" approach. However, the Court declined to hold that such settlements should be presumptively illegal under a ""quick look"" analysis. The Actavis opinion resolves a long-standing circuit split regarding the approach that should be taken toward settlement of pharmaceutical patent cases under the antitrust laws. The lower courts have now been left with the potentially complex task of applying the rule of reason to reverse payment settlements going forward. In the 114 th Congress, a number of bills deal with reverse payment settlements. The Fair and Immediate Release of Generics Act, S. 131 , would make a number of changes to the Hatch-Waxman Act in order to discourage reverse payments settlements. In particular, S. 131 would grant any generic firm the right to share the 180-day regulatory exclusivity if it wins a patent challenge in the district court or is not sued for patent infringement by the brand company. The legislation would also oblige generic firms to abide by any deferred entry date agreed to in their settlements with brand-name firms, even if relevant patents were struck down previously. Finally, brand-name firms would be required to make a decision to enforce their patents within 45 days of being notified of a patent challenge by a generic firm under the Hatch-Waxman Act. Another bill, S. 2019 , the Preserve Access to Affordable Generics Act, would declare that certain reverse payment settlements constitute acts of unfair competition. In particular, that bill would amend the Federal Trade Commission Act to provide that an agreement ""shall be presumed to have anticompetitive effects and be unlawful if—(i) an ANDA filer receives anything of value; and (ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time."" Certain exceptions apply—for example, the payment of reasonable litigation expenses not exceeding $7.5 million would not be unlawful. That ""quick look"" presumption would not apply if the parties to the agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement. S. 2019 includes a list of factors to be weighed by the courts in such circumstances. A third bill, S. 2023 , the Prescription Drug Affordability Act of 2015, would act similarly to S. 2019 . It would also create a presumption that reverse payment settlements violate the Federal Trade Commission Act, subject to certain exceptions. However, unlike S. 2019 , the parties to the agreement would not be able to overcome this presumption by showing that its procompetitive benefits outweigh the anticompetitive harms.","Congress has for many years expressed interest in both medical innovation and the growing cost of health care. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, addressed each of these concerns. Through amendments to both the patent law and the food and drug law, the Hatch-Waxman Act established several practices intended to facilitate the marketing of generic pharmaceuticals while providing brand-name firms with incentives to innovate. The Hatch-Waxman Act established an expedited pathway for generic drug companies to obtain Food and Drug Administration (FDA) approval for their products. It also created a statutory ""safe harbor"" that shields generic applicants from charges of patent infringement until such time as they request approval to market their products from the FDA. The legislation also encourages brand-name firms to identify to the FDA any patents that cover their products. If they do so, the patents are listed in the ""Orange Book""—a publication that identifies approved drugs and the intellectual property rights associated with them. When a generic firm seeks marketing approval from the FDA, it must account for any Orange Book-listed patents—typically by delaying marketing of its products until they expire, or by asserting that the patents are invalid or do not cover the generic's proposed product. This latter assertion exposes the generic drug company to charges of patent infringement by the brand-name firm. The Hatch-Waxman Act also created periods of ""regulatory exclusivity"" that protect an approved drug from competing applications for marketing approval under specified conditions. These FDA-administered regulatory exclusivities typically operate alongside patents to block generic competition for a period of time. Generic firms may sell their own versions of brand-name drugs once these intellectual property rights expire. Several issues relating to the Hatch-Waxman Act remain of interest to Congress. One of them pertains to the legitimacy of ""authorized generics,"" pharmaceuticals that are marketed by or on behalf of a brand-named drug company, but are sold under a generic name. Although authorized generics may be pro-consumer in that they potentially increase competition and lower prices, some observers argue that such products may discourage independent generic firms both from challenging drug patents and from selling their own generic products. In addition, the Hatch-Waxman Act requires generic drug companies to prove that their proposed products are bioequivalent to the brand-name drug. Bioequivalence testing therefore requires that the generic firm use the brand-name product as a basis for comparison. Some generic firms have expressed concerns, however, that certain brand-name firms have refused to sell them samples of their drugs for use in developing competing products. Cases litigated under the auspices of the Hatch-Waxman Act have often ended with a settlement between the parties. In some of these cases, a generic firm agrees to neither challenge the brand-name company's patents nor sell a generic version of the patented drug for a period of time. In exchange, the brand-name drug company agrees to compensate the generic firm, often with substantial monetary payments over a number of years. Because the payment flows counterintuitively, from the patent owner to the accused infringer, this compensation has been termed a ""reverse"" payment. While some observers believe that this outcome results from the structure of the Hatch-Waxman Act, others believe that these settlements are anti-competitive and harmful to consumers."
"BIA administers funding for the operation, maintenance, construction, and repair of school facilities at 171 elementary and secondary schools in 23 states. These schools are located primarily in rural areas and small towns and serve Indian students living on or near reservations. Many of these schools include not only educational buildings, but also dormitories and supporting infrastructure such as water and sewer systems. BIA operates 64 of the schools directly while the others are operated by tribes through separate grant or contract agreements. We previously reported on issues related to the condition of BIA school facilities in 1997 and 2001. BIA’s Office of Facilities Management and Construction (OFMC) is responsible for overseeing FMIS. At both BIA-operated and tribal-operated schools, it is the responsibility of the facility managers to enter data about the inventory and condition of their schools into the system. Prior to acceptance into FMIS, these draft data entries are reviewed and approved by facility managers at BIA agency and regional offices respectively, before final review and approval by a BIA contractor and BIA’s central office. For 22 years BIA relied on its Facility Construction Operations and Maintenance (FACCOM) system to maintain inventory data for its annual O&M program, as well as “backlog” data that reflect repairs and improvements needed outside of the annual maintenance program to improve the facilities’ condition now and in the future. These data assist BIA in monitoring the status of facilities repair and new construction projects and identifying funding needs for O&M and renovation. However, as BIA’s needs began to change, BIA managers realized that FACCOM had limitations and acknowledged that there were serious concerns with the accuracy and completeness of these data. As shown in figure 1, BIA’s efforts to replace FACCOM began in 1995 when one of its contractors issued a report about the FACCOM system’s shortcomings and recommended actions for improvement. In 1995, BIA entered into a contract with Anteon Corporation, a system developer, to design the new management information system. Relying on government standards, BIA worked with Anteon Corporation to design the new system and address FACCOM’s shortcomings. In 1999, BIA contracted with an engineering firm, Applied Management Engineering, Inc. (AME), to conduct a survey at all school sites in order to validate the schools’ condition data and to verify the presence of buildings and their use. According to BIA officials, after AME validated each school’s inventory and condition data, and BIA approved it, the data were accepted into FMIS. From fiscal years 1995 through 2002, BIA spent nearly $12.5 million to develop and begin implementing FMIS. These costs include about $8 million for contractor expenses and over $2.6 million for BIA in-house expenses, which covered the design of FMIS and ongoing technical support. During fiscal years 1999- 2003, BIA spent about $13 million for the AME contract covering the validation of inventory and condition data and other engineering support activities. To operate FMIS, BIA expects to spend about $1.7 million annually through fiscal year 2006 for contractor expenses and about $250,000 for in-house expenses. In fiscal year 2007, BIA hopes to move to an annual steady rate of about $750,000 for contractor costs and about $250,000 for in-house costs. To continue having AME reassess and validate the schools’ inventory and condition data, BIA projects to spend over $8.3 million from fiscal years 2004 through 2006 on contract expenses. Recognizing the FACCOM system’s shortcomings, BIA worked with its system developer to design a new management information system that would assist in resolving many of the weaknesses identified with the old system, including those related to difficulty of use and accuracy of data. FMIS is more user friendly and it is designed to meet facility managers’ needs at all levels within BIA by serving as both an information management system and as a project management tool. FMIS incorporates modules, including the inventory and backlog modules, which help facility managers make decisions regarding the condition of the school facilities to provide a safe environment for their students. The inventory module contains information such as the physical characteristics and use of buildings and is used to make funding decisions for annual operating expenses and routine maintenance. The backlog module contains data that tracks detailed information about the physical condition of a school’s facility and is used to prioritize and fund repair projects, capital improvements, and construction. FMIS is designed to better support the day-to-day activities of the facility management staff by being more user friendly. FMIS is a Windows-based system that provides a point-and-click feature, which makes it easy to navigate the system without having to remember codes. This is important for FMIS users, because some facility managers have little prior exposure to computers. Facility managers we interviewed at the school sites and agency and regional offices said that compared to FACCOM, FMIS is better and easier to use. One facility manager in Arizona said FMIS is easier to use because the system automatically sends messages to him when changes are made to the data, allowing him to instantly see when updates have been made to his school’s data. Another facility manager in Arizona said FMIS’s automated functions, such as drop-down menus, make it user friendly. Finally, according to BIA officials, FACCOM was only accessible by about 3-4 percent of facility managers, which did not include facility managers located at the schools. FMIS is designed to be accessible by all of BIA’s facility managers, including those at the school sites, via an Internet connection. Although most of the facility managers we visited at the schools said FMIS was better compared to FACCOM, many had been unable to access FMIS at school sites since December of 2001 due to a court order that shut down access to BIA’s Internet site. These facility managers had to travel to agency or regional offices to enter data or had to forward data to these offices for data entry. FMIS is also designed to help BIA employees improve the accuracy of the data, in part through automated mechanisms that help facility managers consistently describe the category and rank of backlog entries and the funding needed to address them. One difficulty under FACCOM was that entries listed in the backlog were often categorized incorrectly with inflated priorities, making it difficult to determine which projects needed immediate attention. To address this problem, FMIS is designed to restrict who can enter safety deficiencies, which are given first priority for funding. In addition, FMIS is designed to only accept entries that have been reviewed and approved by three different levels of BIA management and the contractor. Further, BIA refined the definitions of how backlog items should be categorized and ranked to help facility managers use the definitions consistently. The definitions now include nine categories and a ranking system for determining the priority of the items entered into the backlog (see table 1). These nine categories describe whether the deficiency at the school affects safety and endangers students’ lives; violates an environmental, disability, or energy standard; is a maintenance or capital improvement item; or requires an emergency repair. In addition, the system ranks items using a scale from one through three—with one describing the most severe deficiency. The backlog entries ranked as a “1” will most likely be funded first because they are the highest priority. FMIS requires facility managers to enter an associated category and rank for all items entered into the backlog. Such a process, with its greater specificity in how to categorize and rank deficiencies, can help facility managers improve consistency in the data entered for all 171 schools. U-1—an unforeseen event in which danger exists that could reasonably be expected to cause death, physical harm, or property damage. S-1—serious deficiency that poses a threat to safety and health, such as fire safety violations. S-2—moderate deficiency such as poor lighting or trip or fall hazards. (maintenance) M-1—deficiency related to the structural, mechanical, or electrical systems that render it inoperable, such as the deterioration of a roof that causes interior building damage. M-2—deficiency related to the facility, systems, or grounds, such as replacing worn door locks that are inoperable M-3—functional facility equipment exceeds its normal life expectancy. H-1—serious code deficiency, such as the lack of accessible door hardware. H-2—violation of codes and standards, such as the lack of code compliant accessible handrails. X-1—serious code deficiency that poses a threat to life or property, such as removing friable asbestos in occupied areas. X-2—code deficiency, such as removing asbestos floor tiles from a building. R-3—backlogs identified for future planning to determine the life cycle needs beyond the 5-year plan. C-1—to replace buildings with serious code/safety deficiencies or to abate numerous high cost code violations that meet or exceed the replacement cost rule. C-2—to accommodate functional or programmatic needs, such as replacing an undersized dining room to accommodate the student population. P-2—to change the functional space or to accommodate programmatic space needs, such as retrofitting an existing classroom into a computer laboratory. E-2—violation of energy codes and standards, such as upgrading or replacing inefficient heating systems. E-3—deficiencies, which when corrected will reduce energy use, such as replacing weather seals on exterior doors. To help facility managers develop accurate and consistent cost estimates to address backlog items, FMIS is designed to operate with a software program that helps facility managers accomplish industry standard cost estimates for replacement, renovation, or construction projects over $5,000. A facility manager at a school site we visited said that this software tool eliminates the need to make calculations by hand, and thus greatly assists him in estimating accurate costs for school projects. Another accuracy-related area that plagued FACCOM was that projects would continue on the active backlog list even after completion. The FMIS backlog module is designed with a “backlog completion screen” that stores completion dates, costs, and narrative comments. This function helps facility managers monitor the length of time that funded backlog items remained on the backlog without being completed. Unlike FACCOM, FMIS is designed with a tracking function that identifies the name of the person who entered or updated a particular backlog item. Managers can use this function to seek clarification or justification for items that have not been completed within a reasonable timeframe. The FMIS inventory module, one of six modules in the system, is designed to assist BIA in determining operations and maintenance funding for its school facilities. Specifically, the inventory module is designed to manage information about all of BIA’s school buildings, rooms, towers (such as a water tower), and grounds, along with their associated inventory items, such as stairs, sidewalks, or playgrounds. The inventory module also details if the property is owned, operated, or maintained by BIA directly or under contract or grant. The inventory module is designed with the capacity to integrate with other FMIS modules in order to generate reports and provide detailed documentation for federal funding purposes. At the schools we visited, several facility managers said the inventory function in FMIS helps them to better manage their school facilities. For example, one school facility manager in Arizona said FMIS helps him more accurately keep track of his school’s inventory and allowed him to enter the information that is necessary for BIA to make good funding decisions. Another facility manager in South Dakota said that because only one staff person can enter information into the inventory module, his school is able to maintain consistency in inventory changes and additions. The FMIS backlog module is designed to help BIA officials prioritize and make funding decisions for needed repair projects and capital improvements. The backlog collects and tracks condition data related to deficiencies, capital improvements, or construction for specific inventory items, such as classrooms, sidewalks, or utility systems. These data are entered into FMIS by a facility manager, by safety officers as a part of a safety inspection, or by BIA’s contractor. Although the backlog module can store information about any identified deficiency, the only items that are reported as part of BIA’s backlog are those with an estimated cost of more than $1,000 to fix. These deficiencies, which may be grouped together to form repair, replacement, or construction projects are maintained in the backlog until funded and complete. During our site visits, many of the facility managers said the backlog module helped them to better manage their facilities. For example, one school facility manager in Arizona said FMIS’s ability to store digital pictures was helpful because a picture of a deficiency could be sent to the regional facility manager and reviewed without the facility manager traveling nearly 284 miles to the school. Facility managers at schools use the information in the backlog module to justify funding needs for repair projects and capital improvements at their schools. BIA management officials allocating funding among the schools said the data in the backlog module allow them to determine which deficiencies are related to student safety and need to be addressed immediately, and which are related to capital improvements, such as roof replacement, that are planned for the future. BIA officials said they use the backlog data to help improve the physical condition of their schools in order to provide a safe and healthy learning environment for the students. BIA’s engineering contractor has corrected the inventory and backlog data that existed in the old data system, but BIA has not transferred all corrected information to the new FMIS. The contractor completed its validation of the inventory data in February 2003, and BIA plans to transfer the corrected data into the FMIS by August 2003. BIA officials expect that the corrected inventory data, in conjunction with improvement to the existing funding formula, will enhance their ability to better match funding with annual expenses for utilities and routine maintenance at each school site. For the backlog data, BIA’s contractor is in the third year of the second cycle review of the condition of BIA-funded schools as planned. In fiscal year 2002, the contractor visited 33 schools and identified corrections to add, delete, or adjust the FMIS data. BIA, however, had not entered the results of these condition assessments into FMIS for over 1 year. BIA officials attribute the long delays in correcting the FMIS condition data to a revised process for verifying contractor data and to software compatibility problems that they say are being addressed. The FMIS inventory module contains data on BIA facilities, including almost 2,200 separate buildings that are occupied by or used for BIA- funded schools. More than 50 percent (1,146) of the buildings are used directly by children, as shown in table 2. Accurate and up-to-date inventory data are crucial to the operation of the entire FMIS because other modules rely on inventory data for planning and prioritizing the work and for identifying and prioritizing funding needs. For example: School facility managers access inventory data when planning and scheduling routine maintenance of their facilities, grounds, and equipment. For example, one FMIS module acts as a scheduling tool to inform facilities managers about work, such as preventive maintenance, that needs to be done to buildings, equipment, and other physical assets listed in the inventory. BIA’s Office of Facilities Management and Construction uses inventory data in the formula that determines the amount of operations and maintenance funding allocated to each school location. Distribution of this funding is calculated using a formula that includes such inventory data as the square footage of rooms in each building and systems that support the facility such as heating and cooling systems. Funding distributions have been a particular source of contention for Office of Indian Education officials, who told us that inaccuracies in the inventory data have led to inequities in how the money is apportioned. Accurate data that are collected using a methodology that is consistent from site to site is a necessary component for demonstrating the fairness of the process. BIA’s engineering contractor, AME, has remained on schedule in its effort to improve the accuracy of the inventory information currently in FMIS. In conducting this effort, AME visited each school and collected inventory data using a standardized, industry-based approach to help ensure that information on all facilities is uniformly collected and recorded. AME completed the first phase of this effort in 2000, when it visited each school to verify and update the inventory data listed in the FACCOM before its transfer to FMIS in that year, according to a BIA official. This phase, which focused on the more general aspects of the inventory, was aimed at such matters as identifying which buildings were still in use, the use of the facility, and who owns it. AME completed the second phase of the improvement effort in February 2003. This second phase, which took longer than the first phase, involved a more extensive measurement of the buildings and updated the drawings of floor space, grounds, infrastructure, and utility lines. BIA’s current plans call for replacing the existing data in FMIS with this updated and corrected data by August 2003. Our preliminary review of the new data generated during the second phase of AME’s work indicates that the inventory figures may change considerably for some schools. At our request, AME officials provided revised square footage data for more than 90 buildings (such as classroom buildings, dormitories, multipurpose buildings, and offices) at 13 different schools. Overall, the revised measurements for these buildings decreased the total square footage by about 3 percent, but the range in increases and decreases at each school varied significantly. For 9 of the schools the decrease in square footage ranged from less than 1 percent to more than 13 percent; increases for the remaining 4 schools, ranged from less than 1 percent to almost 18 percent. We do not know if these results will be typical for all schools. One BIA official indicated, however, that some schools were likely to experience greater changes than others in the square footage that would qualify for O&M funding. BIA officials said that the improved data, along with improvements to the funding formula, will help ensure the various schools that their share of O&M funding was objectively and accurately determined. However, whether this corrected inventory data will be transferred to FMIS in time for making fiscal year 2004 funding decisions is uncertain. BIA may yet face some implementation problems as it moves into the final months of putting this information in place. For example, during 2002, BIA attempted to run the O&M funding formula using the existing FMIS inventory data for the first time and experienced problems with the data and software. While the agency has had a year to work out these problems, introduction of the updated inventory data may hold its own unforeseen problems. If such problems are encountered and remain unresolved, a BIA official told us that the agency would continue to use the data currently in the system to allocate the O&M funding for fiscal year 2004. The backlog data in FMIS reflects actions and funding needed to improve the condition of facilities and infrastructure at the various schools now and in the future. Most of the items listed in the backlog provide detail for repairs needed over the next 5 years to correct what is wrong with a facility such as a leaky roof, the presence of asbestos, or a violation of handicapped codes and standards. However, FMIS also includes entries for capital improvements that will need to be addressed beyond 5 years to upgrade specific building components such as replacing lighting and power systems, siding, and carpeting as well as future construction to replace, renovate, and add buildings to accommodate program needs. Accurate and up-to-date backlog data are important because FMIS contains formulas that use these data to allow BIA to make informed decisions not only about which projects are in greatest need of attention, but also how much money is needed to fund them each year. As of October 2002, for example, BIA schools had a backlog of unfunded repairs and improvements with an estimated cost over $640 million (see table 3); FMIS shows that almost two-thirds of this amount may be needed within the next 5 years. AME currently validates the backlog for each school in a 3-year cycle. During its first review, in 1999, AME conducted a 100-percent validation of the backlog data prior to transferring that data from the old FACCOM system to the new FMIS backlog module. In that review, AME updated the backlog data by confirming entries already in the system, updating the costs estimated to conduct the work, deleting entries for duplicate items or completed work, and identifying new entries. Results of the validation effort, as shown in table 4, increased the backlog by more than $265 million; almost 28 percent of the total backlog of $960 million that existed in 1999. AME has since started the second review of each school, which consists of updating this information for a certain percentage of the facilities each year. AME updated 20 percent of the facilities in each year 2001 and 2002. For 2003, AME is on track to increase the percentage of facilities reviewed each year to 34 percent to comply with recent changes in the law. These updates involve visually inspecting the architectural, structural, mechanical, and electrical components of each facility to determine if action is still needed and to update the estimated costs. In addition, AME identifies new deficiencies, including the extent to which handicapped accessibility requirements are met, and verifying estimated costs. Our review of some updates conducted during fiscal year 2002 indicates that AME’s reviews will continue to result in substantial changes in backlog data. We obtained data for 14 of the schools reviewed between February and April 2002. For the 14 schools, the AME update resulted in a net increase of almost $11 million (see table 5) in the unfunded FMIS backlog of more than $39 million, an increase of about 28 percent. Part of the change involved modifications to deficiencies already in the backlog inventory, such as revising cost estimates and deleting projects that had been completed or no longer needed but were still listed in the backlog as ongoing. However, a large part of the change involved adding new deficiencies to the backlog. In all, there were almost 650 new backlog entries, and more than 75 percent of these entries were for deficiencies identified at school facilities and dormitories, where children are the primary occupants. For example, there were more than 200 entries for dormitories with an estimated cost of almost $4 million. None of these entries were for urgent or safety deficiencies that needed immediate attention; most were maintenance deficiencies that will need attention over the next 2 to 5 years, such as repairing lighting and plumbing systems, carpeting, and ceilings. While the contractor’s field assessments are proceeding on schedule, there have been significant delays in incorporating the 2002 updated backlog data into FMIS. In fiscal year 2001, the first year of the updates, the contractor assessed the condition of 39 schools and transferred the data from its information system to the FMIS without problems, according to BIA and contractor officials. However, officials said that in fiscal year 2002, the untimely transfer of data from the field assessments to the contractor’s information system and software compatibility problems between the contractor’s information system and FMIS delayed the update of backlog data for 33 schools for over a year. These implementation problems occurred for such reasons as the following: BIA added a new function to the FMIS, which took 6 months to implement, rather than the 2 months that they had planned, according to a BIA official. This new function involved using the FMIS, for the first time, to generate the O&M funding amounts to be distributed to the various schools. A change to the backlog category and ranking system in FMIS created duplicate entries that took time to resolve. In the 2002 assessments, some deficiencies that were already in the system were recategorized, and when the update was transferred to FMIS a duplicate entry was created instead of overwriting the old entry. According to BIA and contractor officials, this software compatibility problem has largely been addressed. As of April 2003, data for 27 of the 33 schools had been entered into FMIS. A BIA official told us that delays in introducing these updates into the FMIS backlog could have some impact on their ability to prioritize or fund repair and capital improvement projects, but not a significant impact for two reasons. First, the deficiencies that receive the highest points in the project ranking system are safety deficiencies, which are identified and updated in an annual safety inspection by BIA’s safety officers and not AME. Second, the most critical deficiencies at the schools were identified in the first assessment in 1999, and during this second assessment, AME is finding very few deficiencies that would be funded within 1 to 2 years that were not already in the system. However, one official acknowledged that since the FMIS ranks the schools for major repair and capital improvement projects based on the points applied to each deficiency, if AME’s assessment indicated an increase in the severity of a deficiency and that change was not reflected in the system, that school could be ranked lower than if the data were up to date. Our site visits to 8 BIA-funded schools did not disclose any instances where serious problems were not being addressed. While facilities management staff and school principals pointed out problems with their facilities, we did not observe that the children were in an unsafe learning environment with obvious safety or repair issues. The problems we observed were either of a less serious nature, or if serious, were being addressed in some form. For example, at a boarding school in Arizona the principal said that the fire alarm system for the school building and dormitory had been improperly installed and had to be replaced. While waiting for the funding for a new system, which had been approved, they had to use funds from the school budget to hire extra people to stand fire watch 24 hours a day. The ability of FMIS to provide accurate and complete data depends on BIA employees entering correct and timely information, but review processes and training programs BIA has established for ensuring data quality have been largely ineffective. Although adherence to federal control standards are a major part of providing reasonable assurance that the objectives of the agency are being achieved, half of the entries proposed by BIA employees are incorrect or incomplete and are flagged by BIA’s contractor. Discussions with BIA employees indicate that some employees are unclear about their responsibilities in maintaining the accuracy of FMIS data, and the high error rates in data entry indicate that additional training is needed in some locations to improve performance. BIA has not analyzed the information it has available about the content and origination of the data errors to determine the type of additional training that might be needed or to target locations with the highest error rates for technical assistance. Further, BIA has not established criteria or performance goals that define its expectations for the accuracy and completeness of the data for employees that enter and review this information. BIA’s Office of Facilities Management and Construction, which manages FMIS, did not until recently have authority to establish criteria or performance goals for agency and regional office personnel that are responsible for reviewing and approving data entries by school facility managers. BIA’s OFMC still does not have similar authority over school facility managers who originate most data entries. Under BIA’s current organization, such action would have to be taken by the Office of Indian Education Programs. BIA established a multilevel review process as a control to prevent problems related to inaccurate and incomplete data entries to BIA’s information system. In this process, each entry that school facility managers propose for the backlog is first reviewed and approved by BIA facility management personnel at an agency and a regional office before it is sent to BIA’s contractor, AME, for review and approval, with final approval by BIA’s central office. After approval has been obtained from each level, the status of the entry is changed from “draft” to “accepted” in FMIS, according to BIA. Although BIA established this multilevel review process to improve the quality of the data entered into FMIS, AME continues to reject half of the proposed entries because they are inaccurate and incomplete. For example, between August 2001 and December 2002, out of more than 650 entries to the backlog made by facilities management staff from 102 schools, more than 300, or almost 50 percent, were rejected by the contractor. BIA documents show that the incidence of the errors among the 102 schools was widespread. In all, 73 of the 102 schools entering data had one or more entries disapproved, and 33 of them had all entries disapproved (see table 6). Facility management staff at the regional and agency offices appear to have the necessary background to fulfill their responsibilities for screening and correcting inaccurate and incomplete data entries; however, it may be unclear to some reviewers what their role is in this process. Federal control standards require that employees have the requisite knowledge, skills, and abilities to perform their job appropriately and have clear roles and responsibilities outlined in their job descriptions. Among the facilities management staffs in the agency and regional offices that we interviewed, most had an engineering background or had significant experience in facilities management and they were aware that maintaining accurate and complete data in the FMIS was important. However, facilities managers we interviewed at two regional offices each had a different view about their role in the review process. One said that it was important that the backlog entries are consistent and that two staff had been designated to review the FMIS entries from the schools and agencies in the region before being sent on to the central office for review by the contractor. The second manager said he reviewed the entries so that he knew what new additions were being proposed for the backlog; he did not consider it his role to critique the entries for accuracy and completeness. Although most BIA locations have staffs that have received training to use FMIS, the extent of the errors indicates that employees may not be receiving the kind of training needed to create accurate and complete data entries. Standards for internal control in the federal government include a commitment to competence, which includes the provision that employees receive the appropriate training necessary to improve their performance. BIA has developed a training program that is intended to provide FMIS users with sufficient information to operate the system. All FMIS users receive 40 hours of training before they are given a password that allows them to access the system, according to BIA; a review of BIA’s training log indicates that about 70 percent of the schools have at least one staff member onsite that has received this training. While training appears to be adequate in terms of providing staff with the basic skills needed to use the computer-based applications, what appears to be lacking in the training program is more specific instruction and guidance on the kinds of information that are needed to enter an accurate and complete deficiency to the backlog. BIA officials acknowledged that a user manual to provide this type of guidance was lacking and should be developed. BIA officials said developing the FMIS training has been a challenge because the facilities management staffs have different levels of knowledge about computers—for some facility managers, FMIS training was their first exposure to using a computer. The training programs were developed to meet the needs of this diverse group of users, according to the contractor that developed and provides the training. In our site visits we asked users about the training that they had received for using FMIS; almost all of the staff that we interviewed said that they were pleased with the training they received and believed that it had prepared them for using FMIS. In addition, they said that when they did have problems they contacted central office with questions and/or problems with using the system, the response was prompt and very helpful. However, the engineering contractor indicated that the varying levels of experience and expertise is a difficulty affecting staff’s ability to input data successfully. He said that there are more than 180 sites with education buildings for which data must be entered and the level of knowledge and expertise about facilities and the kinds of information needed for an FMIS entry varies widely—particularly in those sites where the turnover rate of facilities management staff is high. We were unable to obtain comprehensive data on the turnover rate for the facility management staff, but among the schools that we visited, the facilities managers’ length of employment at their current location ranged from 2 years to 17 years. BIA officials have information on the number and reasons that data entries are rejected at each location, but said that they had not used this information to provide performance counseling to employees or modify the training and guidance in this regard. Standards for internal control in the federal government include the provision that employees receive the feedback necessary to improve their performance. Analyzing the extent and content of data errors would be helpful to determine the type and amount of additional training and guidance needed to improve employee performance at schools, agencies, and regional offices and target them appropriately for technical assistance. BIA data we reviewed indicated that the reasons for disapproval generally fell into one of four groups and were consistent with historical data entry problems experienced under the old FACCOM system. For example, more detailed description was needed for the deficiency; a roof repair, for example, required specific information about the kind of roof and its size; questionable cost estimates involving labor rates or material costs; duplicate entry for a deficiency already in the backlog; and wrong category and/or rank for the entry such as categorizing the replacement of asbestos floor tiles as maintenance rather than environmental, which are funded from different sources. Of these problems, most of the rejected backlog entries generally related to insufficient detail to accurately estimate the cost to address the deficiency, according to an AME official who reviewed and rejected many of these entries. The kind of detail that is needed to successfully enter a deficiency can be seen in an example involving the repair of a leaking roof. To adequately estimate the cost for this repair, information is needed about the size of the area that needs repair or replacement, the composition of the roof (such as asphalt shingles or tile), and other associated components (such as whether skylights or gutters are present and whether they also need to be replaced). We reviewed one entry that had been rejected by the contractor because it came through the review process without information about the roof’s size or its composition. The ineffectiveness of BIA’s guidance, training, and review processes to minimize inaccurate or incomplete data entries by its employees suggests that accountability is another issue that deserves attention. Federal standards require that agencies clearly establish authority and responsibility for achieving agency goals and hold their employees accountable for performing their assigned responsibilities in a competent manner. During our review, the organization of BIA was such that the office that manages FMIS did not have line authority to establish performance criteria and standards for the BIA employees that entered and reviewed the FMIS data. In April 2003, BIA announced a new organization plan. This plan may offer OFMC greater opportunity to establish performance criteria and standards for facility managers at agency and regional offices. BIA officials told us the reorganization would not provide OFMC with line authority for facility managers at schools. However, the Director of the Office of Indian Education programs said that his office would work with OFMC to establish comparable performance criteria and standards for school facility managers. FMIS is designed to assist BIA employees improve the quality of information used to manage school facilities, but the quality of the decisions that BIA makes for managing the operations and maintenance, repair, and construction of its facilities is directly dependent upon BIA employees entering correct and timely information. Currently, the FMIS data that BIA uses for making its decisions are improving as the data are updated by its contractor and entered into FMIS—to date the inventory data have been updated and the contractor is in the third year of assessing the condition of the schools and updating the backlog for the second time. However, challenges remain in BIA’s efforts to improve the quality of data entered by its employees. Although BIA has implemented controls for ensuring the accuracy and completeness of the FMIS data entered and reviewed by BIA employees, they do not work effectively. Without the role of the contractor as a reviewer of new entries by field staff and in conducting site visits to verify and update the data, the quality of the FMIS data could quickly become inaccurate and out of date. BIA has not taken the necessary steps to hold its staff accountable for data accuracy or to use the available information on why the problems exist to develop training programs and target technical assistance where it is needed. Such actions are needed if BIA is to rely on its employees, rather than the contractor, to ensure that it provides a safe and quality learning environment for Indian children. To better enable BIA to rely on its employees for maintaining accurate and complete information in the FMIS, we recommend that the Office of the Assistant Secretary of Indian Affairs establish data standards for accuracy and completeness of FMIS data and related performance criteria for BIA employees who are responsible for entering and reviewing the data and analyze available error data and use this information to provide its employees with the necessary training, guidance, and technical assistance to improve performance. We provided a draft of this report to the Department of the Interior for its review and comment. Interior’s comments are provided in appendix II. In its written comments, Interior agreed with our findings and recommendations and said that BIA is establishing a special working group to develop a plan to address our recommendations. In addition, BIA will consider our comments and observations as it continues to develop and implement the FMIS. We will send copies of this report to the Secretary of the Department of Interior, relevant congressional committees, Indian education organizations, and other interested parties, and will make copies available to others upon request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. Please contact me at (202) 512-6778 if you or your staff have any questions about this report. Other major contributors to this report are listed in appendix III. The objectives of this study were to determine (1) whether the Bureau of Indian Affairs (BIA) new facilities management information system (FMIS) addresses the former system’s shortcomings and meets BIA’s needs for managing school facilities; (2) the status of BIA’s effort to validate the accuracy and completeness of the data being transferred from the old system into FMIS; and (3) how well BIA’s quality control measures are working to ensure that new data entered into FMIS are accurate and complete. To determine the extent to which FMIS was designed to address weaknesses of the previous data processing system and how the new system meets BIA’s facility management needs we reviewed contractor reports, BIA documentation on the FMIS, and interviewed contractors and BIA headquarters, regional, agency, and school facility management staff. First, we reviewed the needs assessment studies conducted by independent contractors to identify old system weaknesses and the recommendations made for addressing the system problems. We then reviewed the FMIS documentation to determine whether the system addressed weaknesses identified in the needs assessment. In addition, we conducted interviews with some of the contractors hired by BIA to build and implement the system. We also interviewed BIA officials at the Office of Facilities Management and Construction, the Division of Safety and Risk Management, and the Office of Indian Education Programs about improvements in the new system and how it meets their management needs. Finally, to understand how well school facility management staff received FMIS, we conducted site visits to 8 schools in Arizona, New Mexico, and South Dakota. We selected these schools to obtain a mix based on their differences in size, geographic location, type of school (i.e., grade level, day school, or on-reservation boarding school), and whether it was BIA-operated or tribal-operated. At these schools, we interviewed facility managers, education line officers, principals, and tribal officials. We also interviewed facility management staff at two regional and five agency offices that provide facility management services to the schools. To determine the extent to which the FMIS inventory and backlog data are accurate and complete we used three methods. First, we obtained data from two sources (1) a copy of the FMIS database and (2) a copy of the contractor file of backlog data from the fiscal year 2002 condition assessments of 14 schools. The data in these files were assessed for reliability, which included looking for missing data, the relationship of one data element to another, values beyond a given range, and dates outside of valid time frames. We determined that the data were sufficiently reliable for the purposes of this report. We also calculated summary statistics of the data from these files. Second, we evaluated BIA’s multilevel review process. For this analysis, we obtained data on the number of backlog entries made by facility managers and the number that had been accepted and rejected by the contractor. In addition, we reviewed the log of entries that had been rejected by the contractor to understand the reasons for these rejections. We also interviewed the contractor and BIA central office and regional and agency facility management staff about this review process. Finally, we accompanied BIA’s engineering contractor on site visits to 2 schools in Arizona where we evaluated their methodologies for data collection and validation of the inventory and backlog data. To determine how well BIA’s internal control measures are working for its FMIS we first reviewed our standards on internal controls to identify controls that apply to an organization’s management of an information system. We then compared the BIA controls with those identified in our reports to evaluate the effectiveness of the BIA controls. Additionally, we interviewed staff at the BIA central office about the internal controls they had in place for the FMIS. We also interviewed staff at the regional and agency offices and the schools about one of the controls—the effectiveness of the training they received. In addition to the individuals mentioned above, Jessica Botsford, Maya Chakko, Terry Dorn, David Gill, Barbara Johnson, Nathan Morris, Stan Stenerson, and Michelle Zapata made significant contributions to this report.","The Bureau of Indian Affairs (BIA) is responsible for providing over 48,000 children with a safe place to learn. In response to concerns that data in its old information system did not accurately reflect the condition of facilities, BIA acquired a new system, called the Facilities Management Information System (FMIS). GAO was asked to determine whether FMIS addresses the old system's weaknesses and meets BIA's management needs, whether BIA has finished validating the accuracy of data entered into FMIS from the old system, and how well the quality control measures are working for ensuring the accuracy of new data being entered into the system from individual schools. FMIS is designed to address the previous data system's shortcomings and appears to have the capability to meet BIA's management needs if the data that are entered into FMIS are correct and timely. The old system was hard to use and did not readily provide data for maintenance and repair efforts. FMIS's design appears to overcome these weaknesses. For example, FMIS has features that help facility managers make data more consistent, as well as tools for helping managers develop cost estimates for maintenance and construction projects. BIA's contractor has been correcting the data that were transferred to FMIS from the previous system, but issues such as software compatibility problems between the contractor's system and FMIS have delayed entry of some of the data for more than 1 year. BIA officials say that these problems are being addressed. They said the delay has not affected their ability to prioritize or fund repair and construction projects, and our review of the data indicated that most newly identified deficiencies will not need to be addressed for 2 to 5 years. Our review of data from 14 BIA schools and observations during site visits disclosed no instances in which these data problems resulted in an unsafe learning environment for children. Most measures for controlling the quality of new data BIA employees are entering into the system for individual schools are not working well. BIA has established a multilevel review process and training programs to help ensure that such data entries are complete and accurate, but BIA's contractor, in reviewing data at the end of this process, continues to find that nearly half of the proposed data entries coming through the system are inaccurate and incomplete. Data entries from one-third of 102 schools that entered data show a 100-percent error rate. As a result, BIA officials continue to rely on their contractor to ensure that FMIS reflects accurate and complete data on the condition of BIA's facilities."
"Over the past five decades, mandatory spending has grown as a share of the total federal budget. For example, figure 1 shows that outlays from mandatory programs rose from approximately 49 percent of total federal spending in 1994 to about 54 percent in 2004, and to 60 percent in 2014. This growth is projected to continue at least through fiscal year 2046. Current law requires OMB to calculate the reductions to budgetary resources required each year to ultimately reduce the deficit by at least an additional $1.2 trillion. For fiscal year 2014, BBEDCA directed OMB to calculate a sequestration of mandatory spending, which was effective on October 1, 2013. A percentage reduction, or sequestration rate, is applied to programs, projects, and activities (PPA), which are generally sub-elements within accounts, to achieve the total reduction amount required for the fiscal year. The sequestration rate varies from year to year based on a formula outlined in BBEDCA. The annual reduction amount calculated by OMB ($109.3 billion) is split evenly between the defense and nondefense functions, and then allocated between discretionary appropriations and mandatory spending in each function in proportion to their share of the function. To determine the requisite percentage reduction to nonexempt budget accounts in each function pursuant to BBEDCA, OMB must define the sequestrable base. For fiscal year 2014, the base for mandatory spending was equal to the current law baseline amounts provided in the President’s Budget submission for fiscal year 2014, including unobligated balances in the defense function, and administrative expenses in otherwise exempt accounts. OMB was directed to calculate a sequestration consistent with provisions of sections 251A, 255, and 256 of BBEDCA, which limit or exempt the sequestration of certain budget authority. Under BBEDCA, many mandatory programs are exempt from sequestration, and Medicare non-administrative spending (spending to pay for services provided to Medicare beneficiaries) could not be reduced by more than two percent. These calculations are issued annually in OMB’s Report to the Congress on the Joint Committee Reductions. OMB provided guidance to agencies primarily through memoranda for heads of executive departments and agencies and other technical assistance. In addition, in July 2014, OMB updated Circular A-11 to include a new Section 100, providing agencies with guidance on sequestration. This added section encouraged agencies to record how sequestration was implemented to maintain consistency from year to year, inform efforts to plan for sequestration in future years, and build institutional knowledge. In fiscal year 2014, the total amount of mandatory budget authority across the federal government was approximately $2.9 trillion, spread across roughly 443 accounts. For each of these accounts, OMB applied the designations outlined in BBEDCA, which labeled certain accounts or activities exempt or subject to special rules, to determine how much budget authority, if any, was subject to sequestration and the relevant sequestration rate for calculating the amount of the reduction. OMB reported the estimated reductions for each account subject to sequestration in the OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2014, which was released in the spring of 2013. Since this report was released prior to the start of fiscal year 2014, the report included estimates for accounts with indefinite budget authority and actual amounts for accounts with definite budget authority. We were unable to quantify the actual amount of total sequestered dollars government-wide in fiscal year 2014 because OMB staff said they do not have complete records of actual budget authority or the amount actually sequestered on an account by account basis. Therefore, they cannot aggregate this data. The sequestration procedures established under BBEDCA were designed to serve as a budget enforcement mechanism and reduce the federal budget deficit. The sequestration procedures do not apply to all mandatory spending. Certain budget authority is exempt or subject to special rules. The majority of mandatory budget authority across the federal government is exempt from sequestration. Among the accounts subject to sequestration, OMB calculated reductions based on differing rates ranging from 2 percent to 9.8 percent, as determined under the provisions of BBEDCA. As shown in figure 2, about $2.2 trillion, or approximately 77 percent, of the total estimated government-wide mandatory budget authority in fiscal year 2014 was exempt from sequestration. Applying the corresponding rates to each sequestrable account yielded an estimated target of $19.4 billion in sequestration reductions government-wide in fiscal year 2014. This represented less than 1 percent of the total estimated mandatory budget authority for that year. The estimated $19.4 billion includes $11.2 billion from budget authority sequestered at the 2 percent rate, $7.4 billion from budget authority sequestered at the 7.2 percent rate, and $778 million from budget authority sequestered at the 9.8 percent rate. Every federal account is assigned a “budget function,” which identifies the national priority supported by that account. As shown in figure 3, approximately 58 percent of the $19.4 billion in estimated reductions, or $11.3 billion, came from Medicare. Although BBEDCA limits the sequestration of Medicare and certain other health programs to a rate of 2 percent, Medicare comprises the majority of the budget authority estimated to be sequestered and it is the largest sequestrable national priority. The projected increases in Medicare spending will likely cause Medicare to comprise a larger share of the sequestration reductions over time. As shown in figure 3, after Medicare the next largest reductions in fiscal year 2014 came from mandatory budget authority for the administration of justice ($1.5 billion), transportation ($1 billion), health ($783 million), and national defense ($778 million). The remaining 20.7 percent of the estimated reductions were spread across 10 other national priorities. BBEDCA specifies that the same percentage reductions must be applied to each PPA within a sequestered account. However, because BBEDCA specifies exemptions and special rules for certain mandatory programs, under the law, different percentage reductions may apply to PPAs within the same budget account, and some PPAs or budget accounts may be entirely exempt. The exemptions and special rules lead sequestration to affect some areas of the federal government more than others. In fiscal year 2014, certain national priorities had a greater proportion of sequestrable budget authority. For example, nearly all mandatory budget authority for Medicare and more than 90 percent of the mandatory budget authority that supports the administration of justice was sequestrable, whereas national priorities such as social security and veterans benefits, which comprise a larger portion of the federal budget, were exempt from sequestration. As shown in figure 4, four national priorities had more than 80 percent of their mandatory budget authority subject to sequestration in fiscal year 2014. In contrast, eight national priorities had less than 25 percent of their mandatory budget authority subject to sequestration. In addition to the varying levels at which national priorities were subject to sequestration, certain national priorities were also subject to different sequestration rates. As described earlier, while BBEDCA limits the fiscal year 2014 sequestration of Medicare and certain other health programs to 2 percent, OMB calculated a 9.8 percent sequestration rate for mandatory budget authority that supports national defense and a 7.2 percent rate for nondefense mandatory budget authority. As with national priorities, varied proportions of federal agencies’ mandatory budget authority were subject to sequestration in fiscal year 2014. About two-thirds of federal agencies with mandatory budget authority implemented sequestration procedures in 2014. As shown in table 1, twelve agencies’ entire mandatory budget authority was subject to sequestration, while 22 agencies’ mandatory budget authority was completely exempt. Of the remaining 33 agencies that were somewhere in between, 9 agencies had 50 percent or more of their mandatory budget authority subject to sequestration and 24 agencies had less than 50 percent of their mandatory budget authority subject to sequestration. While there were varying proportions of mandatory budget authority that was sequestrable within agencies, 45 of the 67 agencies with mandatory budget authority were responsible for administering sequestration. Some of the types of resources that agencies needed to redirect, if any, to implement sequestration are described in a later section of this report. The greatest amount of growth in mandatory spending is attributed to the effects of an aging population and rising care costs for major federal health and retirement programs such as Medicare and Social Security. Most of the mandatory spending that is subject to automatic, annual sequestration is not from the areas that have been the main drivers behind the growth in mandatory spending during the past 10 years. While Social Security and health care are the largest contributors to the overall growth in mandatory spending, aside from Medicare and certain other health programs, these areas are either completely or largely exempt from sequestration. Medicare has a fixed rate of reduction of 2 percent through fiscal year 2024, and Social Security and 21 other agencies are exempted from sequestration cuts. The remaining agencies with sequestrable mandatory budget authority have variable reductions based on the exemptions and rate calculation formula outlined in BBEDCA. Figure 5 shows how the amount of mandatory budget authority that is exempt from sequestration has changed over time compared to the amount that is subject to the required reductions. In addition to the annual, automatic reductions to mandatory spending, the Statutory Pay-As-You-Go Act of 2010 (PAYGO), specifies a second type of sequestration that can be triggered if certain conditions are met. The act established a permanent budget enforcement mechanism intended to prevent enactment of mandatory spending and revenue legislation that would increase the federal deficit. The act requires OMB to track costs and savings associated with enacted legislation and to determine at the end of each congressional session if net total costs exceed net total savings. If so, a separate sequestration will be triggered. Under sequestration—triggered either by BBEDCA or the PAYGO Act— the exemptions and special rules of Sections 255 and 256 of BBEDCA apply. Consequently, the same mandatory accounts that are subject to sequestration under BBEDCA could incur further reductions if a secondary PAYGO sequestration is triggered. It is unclear what effects an additional enforcement sequestration under PAYGO would have on the level of federal agencies’ operations. To provide context and perspective in terms of an individual account or program, we selected a nongeneralizable sample of six accounts for further analysis. As shown in table 2, each of the selected accounts had mandatory budget authority subject to a 7.2 percent reduction including one account that also had a portion of mandatory budget authority subject to a 2 percent reduction. The agencies reported that they implemented these reductions by decreasing the amount of funds or direct payments provided to other federal partners, state and local entities, or individuals. For three of the accounts in the table, the actual sequestered amount differed from the estimate because these accounts have indefinite budget authority. OMB’s guidance for the fiscal year 2013 sequestration—which was issued in the spring of 2013—was the same guidance that applied for the fiscal year 2014 sequestration. Agency officials from four of the six agencies we interviewed described aspects of implementing sequestration in fiscal year 2014 as generally less challenging because they had already experienced the 2013 sequestration. For example, these agencies had already categorized accounts based on their sequestration designation, determined how to allocate the required reductions, and modified reporting systems to implement the 2013 sequestration. Thus, these activities did not need to be repeated to implement the 2014 sequestration order. Even though they had created the administrative framework to implement sequestration during its first year in fiscal year 2013, the agency officials we spoke with indicated that implementation of the fiscal year 2014 sequestration required them to engage in additional administrative activities to ensure that reductions were applied correctly and to accommodate the changes in cash flows for programs and services. This included such things as notifying program participants, performing manual computations, and updating software systems. For two of our six selected accounts, agency officials said it took time to clarify which fiscal year’s sequestration rate to apply when calculating payment reductions to program participants. For example, under the Build America Bonds (BABs) program, the Internal Revenue Service (IRS) administered sequestration reductions by reducing direct payments to bond issuers or reducing tax credits to taxpayers. Officials stated that payments could overlap fiscal years which brought confusion since fiscal year 2013 and fiscal year 2014 were subject to different sequestration rates, thus it was unclear whether the 2013 or 2014 sequestration rate should be applied to the return. As a result of this confusion, IRS’s Office of the Chief Financial Officer developed and issued guidance to describe which sequestration rate should be applied based on which fiscal year certain administrative actions had been completed and if delays had occurred. In addition, until required payment programming changes could be made, IRS staff manually calculated reductions to individual issuers and individually notified payment recipients of the sequestration rate and the total reduction applied to their payment. After issuing the guidance, IRS determined that 262 payments had been made using the wrong sequestration rate, and those payments had to be corrected and re- issued. In the end, IRS sequestered $263 million, which was 7.2 percent of the approximately $3.6 billion in BABs payments made in fiscal year 2014. Similarly, officials from the Farm Service Agency (FSA) within the U.S. Department of Agriculture (USDA) described their challenge of identifying which sequestration rate applied to the Commodity Credit Corporation (CCC) Fund when reducing direct payments to farmers whose crop year did not coincide with the federal fiscal year. Consequently, similar program recipients were subject to different reduction rates depending on the crop year and when their payment was obligated. FSA officials said this meant there could be two neighboring farmers participating in the same CCC program but subject to different sequestration rates. To help ensure appropriate application of the reductions, the agency modified its software programs to incorporate the sequestration calculations for more than a dozen programs. FSA described an additional challenge of determining whether and how to apply fiscal year 2014 sequestration reductions after the Agricultural Act of 2014, known as the Farm Bill reauthorization, was enacted in February 2014. The 2014 Farm Bill created some new programs, while terminating others, which OMB and FSA staff said required time and resources to identify which programs were subject to sequestration and how to implement the required reductions. In certain cases, officials said that sequestration added further uncertainty to pre-existing budgetary restrictions on agencies’ programs. For example, at the Department of the Treasury (Treasury), officials said sequestration reductions to the Treasury Forfeiture Fund (TFF) created additional uncertainty about the availability of funds, which led to cash management concerns. Due to the combination of sequestration reductions, as well as a cancelation and rescission of budgetary resources in fiscal year 2014, Treasury’s Executive Office for Asset Forfeiture (TEOAF) had fewer funds to allocate to participating law enforcement agencies. Treasury applied sequestration reductions to federal forfeiture program related expenses of the member agencies, allowing them to prevent state and local partners, as well as victims, from seeing reduced payments. Treasury staff said sequestration reduced the agency’s flexibility to cover unexpected expenses, such as unanticipated victim payments from prior year forfeitures. While the $125 million in sequestration reductions later became available to TEOAF in fiscal year 2015, the sequestration reduced the amount of funds available in fiscal year 2014, which Treasury staff said made it difficult to manage cash flows. In some circumstances current law allows for budget authority sequestered in one fiscal year to become available to the agencies again in a subsequent fiscal year. OMB refers to these amounts as “pop ups.” Another account where officials reported that sequestration added uncertainty to existing budget restrictions was the Highway Trust Fund. Department of Transportation (DOT) officials said the sequestration of $907 million—that would have otherwise been transferred into the Highway Trust Fund—became a complicating factor to deal with on top of the broader existing cash shortfall the Highway Trust Fund was facing because revenues from fuel taxes were insufficient to maintain authorized spending levels for highway and transit programs. In addition to the agencies managing the six selected accounts included in our review, we also spoke with staff from OMB, given its oversight role and responsibilities related to implementing sequestration across all federal agencies. OMB staff said they also had to redirect staff time and resources to meet the needs of the agencies including a substantial amount of staff hours that could otherwise have been devoted to other agency priorities. For example, staff from OMB’s Budget Review Division said that they spent a substantial amount of time working closely with their Office of General Counsel staff to make determinations regarding the availability of sequestered amounts in subsequent years pursuant to section 256(k)(6) of BBEDCA and to document these decisions. OMB staff said this was a new issue that surfaced in fiscal year 2014 since it was the first year that such amounts would become available for obligation. Staff also indicated that OMB had developed principles to aid in sequestration implementation; however, the process must be repeated every year as new accounts are created. OMB staff also indicated that while they and the agencies have gained more expertise in implementing sequestration, it requires resources and adds considerations that must be factored into the budget process. In March 2014, we recommended that OMB issue guidance directing agencies to formally document the decisions and principles used to implement sequestration for potential future application. In response to our recommendation, OMB revised its Circular A-11 guidance to include a new section about sequestration and directed agencies to record how they implemented sequestration to maintain consistency from year to year, inform agencies’ efforts to plan for sequestration in future years, and build institutional knowledge. OMB staff and some agency officials we spoke with said they rely primarily on apportionment records to document how sequestration was implemented and how much was actually sequestered. Selected agencies reported that program beneficiaries were affected in different ways by the sequestration reductions ranging from smaller direct payments, reduced services, delayed payments, and reduced tax credits. For example, the Health Resources and Services Administration (HRSA) provides services to underserved and vulnerable communities in need of health care. According to HRSA, sequestration reductions in fiscal year 2014 to the health centers and workforce programs prevented the expansion of services to an estimated 365,000 new patients. In addition, HRSA officials reported that, in the absence of sequestration, the National Health Service Corps program would have been able to increase the number of practitioners providing primary care, dental, mental and behavioral health services in the field by 358—from 9,242 to 9,600. According to the officials, this additional staff would have been able to provide services to approximately 300,000 additional individuals in fiscal year 2014. As illustrated in figure 6, in the case of direct payment BABs, sequestration reductions were transferred directly to issuers through reducing the outlay by 7.2 percent after IRS determines that a refund can be disbursed. In the case of tax credit BABs, sequestration reductions of 7.2 percent were taken from any payment owed to the taxpayer by IRS above the bond holder’s tax liabilities, but no reductions were taken from the tax credit if tax liabilities were higher than the amount of the BABs tax credit. FSA’s CCC Fund provides direct payments to farmers under a variety of farm programs to support their operational activities. FSA administered an estimated $574 million in reductions by reducing individual direct payments to farmers at the 7.2 percent sequestration rate, which FSA reported affected thousands of producers across different programs. A senior director from the National Corn Growers Association (NCGA) said the reductions further exacerbated the uncertainty growers were already experiencing from delays in final appropriations decisions for federal programs upon which they rely. FSA officials echoed this concern. In addition, the NCGA representative emphasized the need for growers to know the sequestration reduction amounts with enough time that they may include it in their final projections needed to secure loans for production costs. For fiscal year 2014, $12.6 billion was transferred from DOT’s Payments to the Transportation Trust Fund account directly into the Highway Trust Fund, which in December 2012, we found had been facing increasing shortfalls because revenues from fuel taxes were insufficient to maintain authorized spending levels. This amount was subject to the 7.2 percent reduction rate, translating into a $907 million reduction in monies available to reimburse states for highway projects. However, as a result of a subsequent appropriation of general revenues into the Highway Trust Fund of approximately $9.8 billion in August 2014, officials said DOT was able to pay states any outstanding reimbursement amounts. In other words, states received the full reimbursement, without additional reductions. The subsequent amount was appropriated under the Moving Ahead for Progress in the 21st Century Act (MAP-21) extension, the Highway and Transportation Funding Act of 2014, which was not subject to the 2014 sequestration because the extension was enacted after the sequestration order was issued for fiscal year 2014. We spoke with a senior official from the American Association of State Highway and Transportation Officials, who said the sequestration reductions accelerated the timing of the potential cash shortfall in the Highway Trust Fund. DOT officials echoed this same sentiment. However, this shortfall was ultimately postponed once the MAP-21 extension was enacted. Of the agencies we spoke with, only HRSA could quantify the effects of sequestration on programs or their recipients. The others described the effects in general terms. For example, in the case of the Build America Bonds, which are issued by state and local governments, IRS officials said they do not have a system to track whether bond issuers canceled projects or refinanced them due to sequestration reductions. A senior government official from one state that issued BABs, said that, while sequestration did not lead to the cancelation of any infrastructure projects, the reductions had a negative effect on the state’s budget as a whole. Moreover, it affected his perspective on the reliability of federally subsidized bond programs. According to Treasury officials, in addition to the $125 million reduction to comply with the sequestration order, additional amounts in the TFF were rescinded and canceled, which made it difficult to isolate the specific effects from sequestration alone. However, officials said the reductions had an operational effect on TFF member agencies. For example, officials from IRS’ Criminal Investigation unit (IRS-CI), one of the member agencies that receives the greatest amount of support from the TFF, reported that reductions in funding have limited their capacity to address emerging tax compliance and enforcement issues, such as cybercrime and identity theft. IRS-CI officials reported that lower funding levels caused them to reduce hiring, training, equipment purchases, and case support. As previously described, when the Joint Committee did not propose and Congress and the President did not enact legislation in January 2012 to reduce the deficit over 10 years by at least an additional $1.2 trillion, the sequestration process in section 251A of BBEDCA was triggered to automatically reduce spending such that an equivalent budgetary goal would be achieved. BBEDCA requires cuts totaling $109.3 billion in each year through fiscal year 2021. It is expected that reductions in both discretionary appropriations and mandatory spending will contribute to reaching this target. Reporting actual reductions may increase transparency and help ensure the deficit reduction targets are reached. The availability of amounts pursuant to section 256(k)(6) of BBEDCA could affect progress towards fiscal targets. While those sequestered amounts are counted as reductions in the fiscal year for which they are sequestered, because they can be made available for obligation again in future years, they do not result in lasting savings for the federal government. For example, amounts from revolving, trust, and special fund accounts and offsetting collections from appropriations accounts are temporarily sequestered and may become available in the subsequent year to the extent otherwise provided in law. If the temporarily sequestered amounts become available to the agency for obligation, OMB staff said those amounts are not subject to a second level of sequestration. In response to our March 2014 recommendation, OMB revised Circular A-11 to include a description of what happens to sequestered budgetary resources, including funds that are temporarily reduced. This guidance also instructs agencies on how to record such amounts, which OMB staff said helps to avoid a re-sequestration of those same amounts in the subsequent year. More recently, we asked OMB staff to provide aggregate data to show what amount of funds were sequestered permanently versus those that may become available for obligation in future fiscal years pursuant to the statute. OMB staff said they could not provide total government-wide dollar amounts on this, in part, because the determinations vary case-by-case, depending on the specific statutory language related to each account. BBEDCA does not require OMB to tally the total amount of funds that “pop up” in a given year. However, the act established annual deficit reduction targets. In addition, providing such information is consistent with the internal control standard for information and communication, which states, among other things, that entities must have relevant, reliable, and timely information and communications to achieve their objectives. While we recognize the need for a case-by- case approach to confirm the amount of funding available from “pop ups,” actual amounts for each of these situations could be assembled after the close of each fiscal year. Such information would provide insight about actual progress against the $1.2 trillion deficit reduction target, and would also provide additional transparency to Congress about the total amount of funds agencies have available in a given year. Section 251A of BBEDCA requires OMB to provide estimates of the required reductions for any fiscal year in which a sequestration of mandatory spending and reductions of discretionary spending limits has been ordered. These estimates include a listing of the reductions required for each nonexempt mandatory account and are reported each spring in OMB’s Report to the Congress on the Joint Committee Reductions. OMB staff confirmed that the reductions listed for mandatory accounts with definite budget authority—that is, accounts for which a specific amount of budget authority is determinable at the time of enactment—are equal to the actual amounts sequestered from those accounts. However, OMB staff also confirmed that the reductions listed for mandatory accounts with indefinite budget authority may differ from the amounts that were actually sequestered because the amount of budget authority for these accounts is for an unspecified or indeterminable amount at the time of enactment. This lack of specified amount makes it difficult to determine the total amount to be sequestered in advance of the fiscal year. In addition, OMB staff said there were changes in budget authority for some indefinite accounts and their database has not been updated to reflect those changes to show the actual amounts sequestered in fiscal year 2014. As a result, the database does not reflect the actual amounts sequestered. Thus, while OMB staff calculated the amounts ordered to be sequestered, they were unable to provide an aggregate actual amount sequestered government-wide. Moreover, they are not required under BBEDCA to tally the actual amounts reduced in a given year. This makes it difficult to determine whether progress is being made toward the required reductions. While there is uncertainty in estimating sequestration reductions for accounts with indefinite budget authority, actual amounts could be tabulated after the close of the fiscal year. These data would provide a clearer picture of the precise amount of funds that were permanently canceled, thereby representing the true savings generated from mandatory spending reductions in each year. Moreover, compiling such data could serve as a benchmark to evaluate the progress made each year toward the overall savings of $1.2 trillion required by law. Providing this information is also consistent with the internal control standard for information and communication. Among other things, this standard states that entities must have relevant, reliable, and timely information and communications to achieve their objectives. Of the approximately $2.9 trillion of estimated mandatory budget authority across the federal government in fiscal year 2014, an estimated $19.4 billion was sequestered after OMB and the agencies implementing sequestration carried out their responsibilities under BBEDCA. This represents less than one percent of mandatory budget authority in fiscal year 2014. Dozens of agencies implemented sequestration procedures in 2014 to administer the required reductions. In addition, the reductions affected certain national priorities more than others as provisions of BBEDCA provided exemptions and special rules for certain programs and accounts. Aside from Medicare and certain other health programs, the largest drivers of mandatory spending growth are statutorily exempt from sequestration. The selected agencies we spoke with reported that they were more familiar with sequestration procedures in 2014 since it was the second consecutive year of implementing the required reductions. However, these agencies said implementation involved additional administrative activities, and in certain cases, an additional element of uncertainty when planning and executing their budgets. The form of the reported reductions varied by program and affected beneficiaries differently ranging from smaller direct payments, reduced services, delayed payments, and reduced tax credits. The processes established under BBEDCA were designed to reduce the federal deficit by at least an additional $1.2 trillion over 10 years. However, in certain cases, sequestered amounts become available to agencies in subsequent fiscal years, thereby reversing the corresponding savings from those reductions. OMB does not tally the total amount of funds that are temporarily sequestered and become available in the next fiscal year, referred to as “pop ups.” Identifying these amounts would provide additional transparency to Congress about the total amount of funds agencies have available in a given year. In addition, while OMB publicly reports the estimated amount of sequestration reductions each year, it does not tabulate and report the total amount of the actual reductions government-wide at year-end. Doing so, along with reporting the amount of “pop ups,” would provide a clearer picture to decision makers of the amount of funds that were permanently canceled, thereby representing the true savings generated from mandatory spending reductions each year. Moreover, this data would increase the transparency of the process and provide annual benchmarks to measure progress toward the overall savings of $1.2 trillion required by law. To increase the transparency to Congress about the total amount of funds agencies have available in a given year, we recommend that the Director of the Office of Management and Budget identify and publicly report the total amount of actual budget authority government-wide that is temporarily sequestered and “pops up,” or becomes available again to agencies for obligation in the subsequent fiscal year. To promote further transparency in measuring the federal government’s progress against deficit reduction targets required under current law, we recommend that the Director of the Office of Management of Budget identify and publicly report the total amount of actual reductions in budget authority government-wide each year as a result of sequestration or the reduction of discretionary spending limits under BBEDCA. We provided a draft of this report to OMB and the Departments of Agriculture, Health and Human Services, Transportation, and the Treasury for review and comment. OMB agreed with the first recommendation but disagreed with the second, as discussed below. Each of these agencies provided technical comments, which we incorporated as appropriate. In oral comments received on January 20, 2016, OMB staff agreed with the first recommendation in this report and said they have started to take action. For example, beginning with the fiscal year 2016 budget, the President’s budget contains a data field to record “pop up” amounts. OMB staff said “pop up” amounts are delineated with a particular value in the OMB MAX database and are identified so as not to re-sequester those same funds in the subsequent fiscal year. OMB staff disagreed with the second recommendation in this report and said this would be a burdensome new requirement that is not applied for other types of budget enforcement. For example, they said estimated savings are used for PAYGO enforcement, and there is no requirement for agencies to track actual PAYGO savings over time. In addition, OMB staff said this would be problematic for programs with indefinite funding for direct payments (e.g., benefit payments) because agencies typically record indefinite budget authority equal to obligations incurred as they operate the program. Further, they said requiring agencies to capture the sequestration savings separately in their accounting records would require changes to agencies’ financial systems so that both a pre- sequestration amount and a reduction amount could be recorded for each payment. OMB staff said that their current oversight of sequestration via an annual exercise requiring agencies to certify that they are executing the reductions to payments required by the sequestration order and OMB’s review of estimated reductions is a balanced approach that focuses attention on the critical control elements needed to achieve savings. OMB staff said the attempt to provide additional precision is outweighed by the cost and confusion—and potentially erroneous conclusions—that would be engendered by this recommendation. They said collecting such data would require significant accounting changes both by OMB and agencies and would require coordination and approval by the Department of the Treasury—all of which could take years to implement. As stated earlier in this report, we acknowledge the uncertainty in estimating sequestration reductions for accounts with indefinite budget authority, thereby requiring actual amounts to be tabulated at the close of the fiscal year. In our view, identifying the actual amounts reduced at the close of each fiscal year would be consistent with the type of budgetary reporting practices OMB and agencies already follow when preparing the President’s budget each year. Regarding OMB’s concern that this would require modifications to agencies’ financial systems, we found that the selected agencies who manage the six accounts included in our more in- depth analysis were able to readily provide us with actual amounts reduced under sequestration, including cases where indefinite budget authority was involved. Moreover, there is evidence that at least these agencies have developed their own tracking mechanisms to identify the actual amounts that were reduced each fiscal year. We recognize such tracking mechanisms may vary across agencies, but OMB could request agencies to report the actual amounts as part of the annual preparation of the President’s budget, which could also be compared to apportionment records for the relevant fiscal year. Regarding OMB’s concern that collecting such data would require accounting changes across agencies and coordination with the Department of the Treasury, we recognize that it will take time to establish and refine a government-wide data set of sequestered amounts that is reliable and comparable across agencies. In the interim however, there are data available to both OMB and the agencies that can serve as a meaningful starting point to tally sequestered amounts and calculate a government-wide total, which could be refined over time. The fact that sequestration of mandatory spending will be in effect over the coming decade and an issue that agencies will have to continue to manage heightens the significance of identifying and tracking the actual amounts reduced to promote transparency to key decision makers. Moreover, we believe that taking the next step to calculate a government-wide aggregate dollar amount that could be publicly reported would provide confirmation of the amount of funds that were permanently canceled thereby adding transparency on the true savings generated from mandatory spending reductions each year. We continue to believe that this could help serve as a benchmark to evaluate the progress made each year toward the overall savings of $1.2 trillion required by law. We are sending copies of this report to the appropriate congressional committees; Director of OMB; the Secretaries of Agriculture, Health and Human Services, Transportation, and the Treasury; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or sagerm@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. This report examines: (1) the designation of mandatory accounts across the federal budget under the President’s sequestration order for fiscal year 2014; (2) how selected agencies implemented the fiscal year 2014 sequestration order and the effects, if any, they reported the required spending reductions had on programs and services; and (3) how continued sequestration of mandatory spending relates to the achievement of deficit reduction goals. To accomplish our first objective, we identified how mandatory accounts were designated under sequestration primarily using a data set provided by OMB staff. This data set was generated by OMB through a government-wide data collection exercise to calculate the sequestration percentage and reductions by account, and issue the report required under the Joint Committee process. The data set includes the estimated budget authority, sequestration designation, sequestration rate, and the budget subfunction for every account with mandatory budget authority in fiscal year 2014. We assessed the reliability of this data set through interviews with agency officials, review of relevant documentation, and electronic data testing. We found the data to be sufficiently reliable for the purpose of our report. We focused on fiscal year 2014 because mandatory accounts were sequestered but discretionary accounts were not. Additionally, fiscal year 2014 was the most recently completed fiscal year for which actual data were available for the selected accounts included in our review. We also analyzed actual budget authority data for all mandatory accounts government-wide from OMB’s MAX database and matched it with the sequestration designation data to show trends over time from fiscal year 2005 through fiscal year 2014. We assessed the reliability of the data extracted from OMB’s MAX database through electronic data testing. We found the data to be sufficiently reliable for the purpose of our report. To accomplish our second objective, we selected a nongeneralizable sample of six accounts for a more in-depth review of the implementation of sequestration and its effects. To select the six accounts, we reviewed OMB sequestration data for all mandatory accounts across the federal budget for fiscal year 2014 and sorted for those accounts with at least $50 million in estimated reductions. This analysis yielded 31 accounts, which represented over 90 percent of all sequestrable mandatory budget authority government-wide in fiscal year 2014. From these accounts, we selected six accounts representing a variety of characteristics including the amount of sequestrable budget authority, type of account, agency, budget function, and whether the account included some portion of budget authority that was exempt from sequestration. In addition, we identified which national priorities (i.e., budget function) were affected the most (in percentage terms) by the fiscal year 2014 sequestration. We eliminated accounts that were recently discussed in prior GAO work, such as Medicare. Table 3 lists the six accounts that we selected. Furthermore, we reviewed budget data, guidance, and documentation of any reported programmatic effects of sequestration for each of the selected accounts. We spoke with agency budget and program officials, as well as OMB staff, about their challenges and lessons learned from implementing sequestration. In addition, we spoke with a nongeneralizable selection of interest groups to gain their perspective on the effects of sequestration on programs and services. We also interviewed agency officials on how their agency implemented OMB’s revised A-11 guidance on sequestration. To accomplish our third objective, we reviewed relevant literature and the government-wide federal budget data described above that was used for our first objective. In addition, we reviewed relevant legislation, executive memoranda, OMB guidance and federal standards for internal control to identify the criteria used in our analysis. Also, to inform our analysis, we interviewed a nongeneralizable selection of budget specialists with a broad range of agency, congressional, and academic experiences including current and former congressional staffers and agency officials to obtain their perspective on the implications of sequestration. Each selected specialist had at least 15 years of experience with extensive backgrounds in federal budget and policy issues and served in a variety of positions across the federal government and academia. While the views from these selected specialists are not generalizable nor do they represent the full range of possible views on sequestration, they provided insight and perspectives about sequestration. We conducted this performance audit from February 2015 to April 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. As part of our review, we selected a nongeneralizable sample of six accounts and examined how the agencies responsible for managing those accounts reported implementing sequestration procedures in fiscal year 2014. These six accounts serve as case illustrations to better understand how the required spending reductions were applied and what effects, if any, these reductions had on agencies’ programs and services. We selected accounts based on several characteristics including the amount of sequestrable mandatory budget authority, budget function, type of account, agency, and whether the account included some portion of funds that were exempt from sequestration. Build America Bonds (BABs) were created as a part of the American Recovery and Reinvestment Act of 2009 (Recovery Act) to stimulate municipal infrastructure spending by reducing borrowing costs for state and local governments. BABs are taxable government bonds with federal subsidies for a portion of the borrowing costs. BAB subsidies could be either in the form of nonrefundable tax credits provided to holders of the bonds (tax credit BABs) or refundable tax credits paid to state and local governmental issuers of the bonds (direct payment BABs). The funding for this account was authorized under the Recovery Act. State and local governments had the ability to issue BABs through December 31, 2010. The BABs account supports our national priority on general purpose fiscal assistance (budget subfunction 806). In the case of direct payment BABs, sequestration reductions were transferred directly to issuers through reducing the outlay by 7.2 percent after IRS determines that a refund can be disbursed. In the case of tax credit BABs, sequestration reductions of 7.2 percent were taken from any payment owed to the taxpayer by IRS above the bond holder’s tax liabilities, but no reductions were taken from the tax credit if tax liabilities were higher than the amount of the BABs tax credit. In fiscal year 2014, approximately $263 million was reduced and permanently canceled from this account in accordance with sequestration procedures. Sequestration reduced the amount of the subsidy that bond issuers received, thus increasing borrowing costs for state and local infrastructure projects. According to one official, the reduced borrowing subsidy, along with other factors such as market interest rates changing, may have contributed to some bond issuers prepaying their BABs. Officials from Treasury’s Office of Tax Analysis (OTA) estimated that some of the infrastructure projects funded by these prepaid BABs may have been refinanced at a lower cost and some projects may have been canceled, but IRS staff said they cannot report how many projects were canceled because issuers are not required by law to report the reason for early prepayment of bonds. On a higher level, one OTA official said that sequestration of BABs reduced the credibility of federally subsidized municipal bond programs. This presented a challenge for this program since direct payment bonds were a new type of municipal financing tool. As a result, OTA officials said that the proposal for a new municipal bond program called Fast Forward Bonds, which uses a similar type of direct payment mechanism, was crafted to assure potential bond issuers and holders that sequestration will not affect the level of subsidies provided by the federal government. According to officials, implementing sequestration for BABs was administratively challenging for IRS since the reductions had to be applied to each payment manually until programming changes could be made. IRS individually notified payment recipients of the sequestration rate and total reduction applied to their payment. During the transition between fiscal year 2013 and fiscal year 2014, IRS staff said they also encountered ambiguity determining which sequestration rate to apply to payments. For example, if a tax return was received toward the end of fiscal year 2013 but was not fully processed until fiscal year 2014 had already begun, it was often unclear if the 2013 or 2014 sequestration rate should be applied to the return. As a result of this confusion, IRS developed and issued guidance about which cases to apply the current or previous year’s sequestration rate. After issuing the guidance, IRS determined that 262 payments had been made using the wrong sequestration rate, and those payments had to be corrected and re- issued. The Commodity Credit Corporation (CCC) is a government-owned and government-operated entity that was created in 1933 to stabilize, support, and protect farm incomes and prices. CCC also helps maintain balanced and adequate supplies of agricultural commodities and aids their orderly distribution. The CCC has an authorized capital stock of $100 million held by the United States and the authority to have outstanding borrowings of up to $30 billion at any one time. Funds are borrowed from the U.S. Treasury. The U.S. Department of Agriculture’s (USDA) Farm Service Agency (FSA) is responsible for providing management and oversight of the CCC Fund, which supports the national priority of farm income stabilization (budget subfunction 351). FSA applied the 7.2 percent sequestration rate to the CCC Fund’s actual mandatory budget authority of $9.1 billion in fiscal year 2014. The OMB estimate of the account’s mandatory budget authority was based on the estimated program participation for that year, whereas the final reduction was based on actual program participation. An estimated $574 million was to be sequestered, but the actual amount was approximately $646 million. While approximately $646 million was reduced from the account in fiscal year 2014 and not available for obligation during that year, this reduction was designated as temporary, meaning that funds were not canceled nor reverted to the General Fund of the Treasury. Instead, these amounts remain in the fund or account and may be available in subsequent years only to the extent provided in appropriations or authorizing language. FSA officials said the sequestered amounts did not “pop up” the next year nor have they been made available to the agency for obligation. The required spending reductions affected a range of program areas supported by the CCC Fund, according to officials. For example, under the Crop Direct Payments program, 1.7 million farmers received reduced payments. Under the Emerging Market program, fewer grants were funded. Agency officials reported that their software had to be modified to apply the sequestration rate to reduce each obligation or payment for 13 different programs and activities. In addition, FSA officials said it took some time to determine which sequestration rate to apply since the crop year for certain programs does not coincide with the federal fiscal year. For example, FSA officials said two neighboring farmers who participate in the same program might be subject to different sequestration reduction rates depending on which fiscal year the payment was obligated to the program participant. FSA officials characterized sequestration as a complicating factor on top of their broader existing budget constraints related to the reauthorization of the Farm Bill. In February 2014, halfway through the fiscal year, the Farm Bill was re-authorized and included the creation of new programs and the termination of others. Agency officials said it took some time to clarify whether any of the new programs were subject to sequestration and in which fiscal years. The Health Resources and Services account supports the Health Resources and Services Administration’s (HRSA) goal of increasing access to basic health care for those who are medically underserved. The Health Resources and Services account consists of both discretionary and mandatory budget authority and supports the national priorities of health care services (budget subfunction 551) and health research and training (budget subfunction 552). The following programs are supported by mandatory budget authority: Health Center Program: Since 1965 this program has been delivering comprehensive preventive and primary health care to vulnerable populations regardless of their ability to pay. Mandatory budget authority provided funding for community health centers under the Affordable Care Act in 2010, which also established a Community Health Center Fund to provide for expanded and sustained national investment in community health centers. National Health Service Corps (NHSC): Created in 1970, the NHSC is a clinician recruitment and retention program that Congress created to reduce health workforce shortages in underserved areas. The NHSC provides scholarships and loan repayment opportunities to individuals in exchange for a commitment to serve in NHSC approved sites where there is a shortage of health professionals. In fiscal year 2014, the NHSC was fully funded by the Community Health Center Fund. Federal Capital Contribution Loan programs: HRSA administers the Health Professions and Nursing Federal Capital Contribution Loans. Through these revolving fund accounts, funds are awarded to institutions that in turn provide loans to individual students. As the loans are repaid, the account is replenished by offsetting collections. HRSA grants awards to more than 3,000 grantees including community- based organizations; colleges and universities; hospitals; and state, local, and tribal governments that support the mission of the agency. To implement the sequestration reductions, officials reported that HRSA decreased the number of awards granted to recipients and made fewer loan repayments and scholarships to health professionals. These funds were permanently sequestered. Funds from the Health Resources and Services account related to loan programs were temporarily sequestered because they are financed through a revolving fund supported by collections. These funds became available again in fiscal year 2015 as a “pop up”. Because the loan programs are financed through revolving fund accounts, they are subject to temporary sequestration under BBEDCA. The Health Resources and Services Administration (HRSA) provides services to underserved and vulnerable communities in need of health care. According to HRSA, sequestration reductions in fiscal year 2014 to the health centers and workforce programs prevented an expansion of services to an estimated 365,000 new patients. In addition, HRSA officials reported that, in the absence of sequestration, the National Health Service Corps program would have been able to increase the number of practitioners providing primary care, dental, mental and behavioral health services in the field by 358—from 9,242 to 9,600. According to those officials, this additional staff would have been able to provide services to approximately 300,000 additional individuals in 2014. Generally, institutions that have excess funds from loan repayments received from borrowers are required to return these funds to HRSA. The agency can then redistribute these funds to other institutions in need of additional funds. Agency officials said HRSA was not able to redistribute approximately $1.2 million of these excess funds in fiscal year 2014 because they were subject to the sequestration reductions. This account functions as a mechanism to transfer appropriated funds from the General Revenue Fund of the Treasury into the Highway Trust Fund as a result of legislative action. In recent years, the Administration has proposed to rename the Highway Trust Fund to the Transportation Trust Fund. The primary funding sources for the Highway Trust Fund are federal excise taxes on motor fuels (gasoline, diesel, and special fuels taxes) and truck-related taxes (truck and trailer sales, truck tire, and heavy-vehicle use taxes). The purpose of the transfer of funds from the General Revenue Fund of the Treasury to the Highway Trust Fund is to maintain the solvency of the Highway Trust Fund throughout the reauthorization period and cover the structural deficit created by the demands of new transportation programs. The Highway Trust Fund, administered by the Department of Transportation (DOT), is the major source of funding for federal surface transportation; however the fund’s revenues are eroding while outlays have outpaced these revenues since 2001. To maintain authorized spending levels for highway and transit programs and to cover revenue shortfalls, Congress transferred a total of about $63 billion (before sequestration) in general revenues to the Highway Trust Fund on six occasions between fiscal years 2008 and 2014. The Highway Trust Fund primarily supports surface transportation programs administered by four DOT operating administrations: the Federal Highway Administration, Federal Transit Administration, Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety Administration. For fiscal year 2014, Section 40251 of the Moving Ahead for Progress in the 21st Century Act (MAP-21) appropriated $12.6 billion from general revenues to the Highway Trust Fund. This appropriation was recorded on the Payment to the Transportation Trust Fund account. This account supports our national priority on ground transportation (budget subfunction 401). This appropriation was subject to sequestration in fiscal year 2014, which resulted in a total appropriation of approximately $11.7 billion. A subsequent appropriation in the amount of approximately $9.8 billion was provided in August 2014, under the MAP-21 extension that was not subject to the 2014 sequestration because the extension was enacted after the sequestration order was issued for the applicable year. The sequestered amount of $907 million was permanently canceled in fiscal year 2014 in accordance with sequestration procedures. DOT officials indicated that sequestration did not reduce spending; instead, it only reduced the general revenue amounts initially transferred into the Highway Trust Fund. They said this reduction had the effect of hastening the eventual cash shortfall; however, Congress acted in time to infuse additional funds and thus further postpone this situation. As a result, the Federal Highway Administration did not have to reduce any payments. DOT officials characterized sequestration as a complicating factor on top of their broader existing budget constraints related to the revenue shortfalls in the Highway Trust Fund. They said that staff time and resources were focused on ensuring that there were sufficient funds available to cover obligations of the Highway Trust Fund, in addition to time spent to implement the sequestration reductions and attend high- level meetings with senior staff. The recurrence of sequestration adds to a broader concern, which is ensuring the long-term solvency of the Highway Trust Fund. The Social Services Block Grant account (SSBG) is a federal block grant which provides funding directly to states to support a wide range of social policy goals such as promoting self-sufficiency, preventing child abuse, and supporting community-based care for the elderly and disabled. Social services activities supported with these funds include child care, foster care, protective services for adults, and special services for the disabled. SSBG funds are allocated to states according to the relative size of each state’s population. States have total discretion to set their own eligibility criteria for program participants and have broad discretion over the use of the funds. The Office of Community Services within the Department of Health and Human Services’ Administration for Children and Families (ACF) is responsible for providing management and oversight of the SSBG account, which supports the national priority on social services (budget subfunction 506). ACF implemented the sequestration reductions to the SSBG’s fiscal year 2014 mandatory budget authority of $1.8 billion by applying the 7.2 percent sequestration rate to the statutory grant formula. Approximately $129 million were reduced and permanently canceled from this account. ACF officials said that the states bore the primary challenge because they were responsible for identifying areas for reductions in services. In November 2013, ACF informed grant recipients of the sequestration reductions by announcing each state’s allocation for the first quarter of fiscal year 2014 with the sequestration rate already applied. ACF officials said that all states and territories that received SSBG funds incurred a proportional reduction in their grant amount based on the statutory formula. Agency officials said that while they have not collected information on the effects of the sequestration reductions, they know that each state reduced funds for services and individually determined the specific service categories to be reduced. ACF officials said they do not have any information on any challenges that states may experience as a result of the continued sequestration in effect under current law. The Treasury Forfeiture Fund (TFF) is a multi-departmental fund and has four primary goals: to (1) deprive criminals of assets used in or acquired through illegal activities; (2) encourage joint operations among federal, state, and local law enforcement agencies, as well as foreign countries; (3) protect the rights of individuals; and (4) strengthen law enforcement. The Treasury Executive Office for Asset Forfeiture (TEOAF) is responsible for providing management and oversight of the TFF. The funding for this account comes from non-tax forfeitures made pursuant to laws enforced or administered by participating agencies within the Department of the Treasury (Treasury) and the Department of Homeland Security. TFF funds are used to cover expenses associated with its member agencies’ forfeiture programs, including the storage and maintenance of seized property; investigative costs leading to seizure; payments to financial victims and other third parties; and equitable sharing payments to law enforcement partners. If there is a remaining unobligated balance at the close of the fiscal year after an amount is reserved for Fund operations in the next fiscal year; Treasury may declare a “super surplus.” This balance can be used for any federal law enforcement purpose, whether or not it is related to forfeiture. Treasury officials report that super surplus is used to fund top priorities of TFF agencies, as well as initiatives supporting financial investigations. This account supports our national priority for the administration of justice (budget subfunction 751). Treasury applied the 7.2 percent sequestration rate for the TFF’s fiscal year 2014 budget authority of $1.74 billion. The OMB estimate was based on anticipated forfeiture revenue for fiscal year 2014, whereas the final reduction was based on actual revenue. Although roughly $125 million was sequestered in fiscal year 2014, the law allowed for this amount to become available again in fiscal year 2015 as a “pop up.” In addition to sequestration, a portion of the TFF was rescinded and canceled during fiscal year 2014. Treasury officials emphasized that it is too difficult to parse out the effects of sequestration on the TFF separately from the rescissions and cancelation, but the combined effect of these reductions has impeded the TFF’s ability to support law enforcement. In fiscal year 2015, as a result of cumulating reductions on TFF balances, Treasury was unable to declare super surplus for the first time in the fund’s 22-year history. In fiscal year 2014, Treasury officials reported they were able to spare equitable sharing with state and local law enforcement partners and payments to victims from reductions, but this meant reducing the amount of budgetary resources available to support other forfeiture-related expenses and agencies’ priorities. Rescissions and sequestration resulted in a large portion of TFF’s budget authority being unavailable for obligation according to officials. As a result, Treasury officials reported that the TFF must rely almost solely on incoming monthly revenue from newly completed forfeiture cases to be able to allocate the funds. According to Treasury officials, every low revenue month causes cash flow problems and delays in funding allocations for various programs, resulting in interruption and delays in TFF’s agencies’ operations and the processing of equitable sharing payments and refunds, which they said results in victims and state and local agencies having to wait longer to receive their payments. Administratively, the officials indicated that sequestration adds uncertainty to the TFF budget and reduces program flexibility to handle unexpected expenses. Though the sequestered funds may become available in the subsequent fiscal year, sequestration reduces the amount of funds available in the current year which makes it difficult to manage cash flows. In addition to the contact named above, Carol M. Henn, Assistant Director and Leah Q. Nash, Analyst-In-Charge made major contributions to this report. Also contributing to this report were Shari Brewster, Evelyn Calderon, Deirdre Duffy, Ellen Grady, Ricky Harrison, Donna Miller, John Mingus Jr., Katherine D. Morris, Kathleen Padulchick, Cindy Saunders, Timothy N. Shaw, Stewart Small, and Lou V.B. Smith.","In fiscal year 2014, federal agencies implemented the second consecutive year of sequestration reductions to mandatory spending, which are scheduled through fiscal year 2025. GAO was asked to review the implementation of sequestration on mandatory accounts and any related effects. This report examines 1) the designation of mandatory accounts government-wide under the President's sequestration order for fiscal year 2014, 2) how selected agencies implemented sequestration and any effects they reported on programs or services, and 3) how continued sequestration of mandatory spending relates to the achievement of deficit reduction goals. GAO analyzed fiscal year 2014 budget data on sequestration; selected a nongeneralizable sample of 6 accounts from USDA, HHS, Treasury, and DOT based on the amount of sequestrable budget authority, budget function, and account type; reviewed documentation on sequestration; interviewed budget officials; and reviewed legislation. GAO found that in fiscal year 2014, total mandatory budget authority government-wide was approximately $2.9 trillion spread across roughly 443 accounts. The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended, required the Office of Management and Budget (OMB) to apply a range of sequestration rates to non-exempt mandatory spending. This resulted in estimated reductions of $19.4 billion in fiscal year 2014, which was less than one percent of mandatory budget authority. Exemptions and special rules in BBEDCA led some areas of government to be reduced more than others. For example, 90 percent or more of mandatory budget authority for the administration of justice and transportation was subject to reduction. Veterans benefits and services were exempt. About two-thirds of the 67 federal agencies with mandatory budget authority implemented sequestration procedures in 2014. The largest drivers of mandatory spending growth—Social Security and health care—are statutorily exempt from sequestration under BBEDCA, with the exception of Medicare and certain health programs which are subject to a special rate. Agency officials responsible for managing the selected accounts in GAO's review at the Departments of Agriculture (USDA), Health and Human Services (HHS), the Treasury (Treasury), and Transportation (DOT) reported varied administrative and programmatic effects. While they said 2014 sequestration procedures were similar to the prior year, implementation involved additional administrative activities to ensure that reductions were applied correctly and to accommodate the changes in cash flows for programs and services. In certain cases, selected officials said sequestration added uncertainty when planning and executing their budgets. They also said that the required reductions affected program beneficiaries in different ways including smaller direct payments, reduced services, delayed payments, and reduced tax credits. The processes established by BBEDCA were designed to reduce the deficit over 10 years by at least an additional $1.2 trillion. However, the subsequent availability of temporarily sequestered budget authority in certain accounts—referred to as “pop ups”—provide savings in the year they are sequestered but do not represent lasting savings. OMB staff said they do not tally the total amount of funds that “pop up,” nor are they required to do so. However, doing so would provide additional transparency to Congress about the total amount of funds agencies have available in a given year. In addition, actual sequestered amounts for certain types of mandatory spending cannot be determined until the end of the fiscal year due to the variable nature of indefinite budget authority—budget authority for an unspecified or indeterminable amount at the time of enactment. OMB staff said they do not aggregate government-wide data on the actual amounts sequestered nor are they required to do so under BBEDCA. However, tabulating actual amounts after the close of the fiscal year would provide a clearer picture of the amount of funds that were permanently canceled, thereby representing the true savings generated from mandatory spending reductions each year. Moreover, compiling such data could improve transparency and serve as a benchmark to evaluate the progress made each year toward the required overall savings of $1.2 trillion. GAO recommends that OMB identify and publicly report the total amount of (1) temporarily sequestered budget authority that becomes available in subsequent fiscal years and (2) actual budget authority sequestered government-wide each year. OMB agreed with the first recommendation but disagreed with the second, citing implementation burden. GAO believes such information would enhance the transparency of achieving federal deficit reduction goals as discussed in the report."
"As part of our data gathering efforts, we identified knowledgeable officials from selected federal intelligence and law enforcement agencies that had provided research funding for the Brain Fingerprinting technique, had explored use of the technique, or had engaged in related or direct research. Specifically, we spoke with officials at CIA; components of DOD, which included the DOD Polygraph Institute, National Security Agency, Defense Security Service, Army Criminal Investigation Command, Air Force Surgeon General’s Office, and the Office of the Assistant Secretary of Defense for Command, Control, Communications, and Intelligence; FBI; and Secret Service. At DOD, our substantive contact focused on officials from the DOD Polygraph Institute and Defense Security Service. For their collective views, we refer to these components as “DOD.” Otherwise, we refer to them by their individual name. At FBI, we spoke with officials who had been involved in an evaluation of the Brain Fingerprinting technique. We also spoke with two FBI agents who had collaborated with the developer on related research. We interviewed these individuals because they had first-hand knowledge of the Brain Fingerprinting technique and experience with FBI investigative procedures. In addition, we reviewed and analyzed documents provided by those agencies that relate to Brain Fingerprinting and various forensic applications. To gain an understanding of the science underlying Brain Fingerprinting, we interviewed researchers at the National Institutes of Health (NIH), three scientists in the field of psychophysiology, and the developer of the technique. We selected these scientists on the basis of recommendations made by the agency officials we interviewed, researchers we spoke with at NIH, and the developer. In addition, two of the scientists we spoke with had testified in Harrington v. Iowa, the one court case we have identified that has addressed Brain Fingerprinting evidence. In providing their views, these scientists helped us understand the underlying methods of Brain Fingerprinting and its potential application as an investigative tool. We have included a summary of their views in appendix I of this report. Their views are not meant in any way to represent the views of the scientific community as a whole. Furthermore, as part of our research efforts, we identified and reviewed available documentation, including articles, studies, reports, and other relevant materials in the related fields of psychophysiology, neuroscience, and forensics. Our search for information related to Brain Fingerprinting revealed that only a limited amount of independent documentation exists about the technique and its uses for law enforcement and intelligence. We also reviewed court documents in Harrington v. Iowa and interviewed the prosecuting attorney in the case. We did not perform a technical analysis of Brain Fingerprinting. That is, we did not independently assess the hardware, software, or other components of the technology nor did we attempt to determine independently whether Brain Fingerprinting is a valid technique. We performed our work from January 2001 to August 2001 in accordance with generally accepted government auditing standards. Several federal agencies are involved in researching, developing, or using techniques to detect deception and have interacted, to varying degrees, with the developer since the early 1990s. CIA’s Directorate of Science and Technology researches, develops, and applies enabling technologies in support of the agency’s mission to collect, process, and analyze foreign intelligence and counterintelligence information. From 1991 to 1993, the Directorate’s forerunner, the Office of Research and Development, funded the developer about $1 million for research involving experimental studies designed to evaluate and improve techniques for detecting concealed information using electrical brain wave measurements. Components within DOD, including the DOD Polygraph Institute and Defense Security Service, are involved with detection of deception research, such as brain wave research, and are knowledgeable about Brain Fingerprinting. The Polygraph Institute’s research mission is to evaluate the validity of psychophysiological detection of deception techniques used by DOD and other agencies, investigate countermeasures (i.e., deliberate techniques used by deceptive subjects to avoid detection during a polygraph examination) and anticountermeasures, and conduct developmental research on psychophysiological detection of deception techniques, instrumentation and analytic methods. According to the Polygraph Institute, the agency’s most recent contact with the developer occurred in 1999, when he met with the Chief of Research to discuss the Polygraph Institute’s grants program. Within FBI, the Laboratory Division researches, develops, and deploys new forensic techniques and technologies. The Division evaluated the Brain Fingerprinting technique in 1993 and 1999. In addition, two agents within FBI’s Behavioral Science Unit and the Laboratory Division had collaborated with the developer on related research in 1992 and 1993. The Secret Service’s Forensic Services Division, which manages its polygraph programs nationwide, conducts examinations involving criminal, national security, and employee screening matters. In 1998, a representative of the developer had contacted the division in an effort to provide the agency with information on the technique. The division subsequently reviewed the information and consulted with a CIA official because of the official’s knowledge of and experience with the technique. According to its developer, Brain Fingerprinting is designed to determine whether an individual recognizes specific information related to an event or activity by measuring electrical brain wave responses to words, phrases, or pictures presented on a computer screen. The technique can be applied only in situations when investigators have a sufficient amount of specific information about an event or activity that would be known only to the perpetrator and investigator. In this regard, Brain Fingerprinting is considered a type of Guilty Knowledge Test. Only the guilty party is expected to react strongly to the relevant details of the event or activity. Its developer has indicated that Brain Fingerprinting, therefore, is not designed for screening functions, which involves questioning individuals about events unknown to the investigator. Rather, the developer has indicated that an investigator would be able to use this information as evidence for or against a suspect. For example, he has indicated that the technique could be used to determine whether a suspect has knowledge of details connecting him or her to a crime. Brain Fingerprinting uses an EEG to record distinct patterns of brain activity. These patterns, called event-related potentials, are measures of the brain’s electrical activity or “potentials” as they correspond to stimuli or “events” in the environment. By averaging the distinct patterns of electrical activity, a singular waveform is created that is generally dissected into various components associated with cognitive functions. The event-related potential components relevant to Brain Fingerprinting are the P300 and the Memory and Encoding Related Multifaceted Electroencephalographic Response (MERMER). The P300 component has been recognized by the scientific community as an electrically positive charge that peaks between about 300 and 500 milliseconds in response to rare, meaningful, or noteworthy stimuli. The MERMER, patented by the developer, includes the P300 and subsequent electrical changes occurring at about 800 to 1200 milliseconds after a stimulus has been presented to a subject. According to the developer, MERMER has not undergone independent peer review testing and is not well accepted in the scientific community. The developer has indicated that use of the Brain Fingerprinting technique should involve the following procedure. An examiner or investigator with expertise in the Brain Fingerprinting technique reviews and identifies evidence related to an event or activity through various means, such as personal interviews, police records, court testimony, crime scene photos or a crime scene. From this information, the examiner or investigator chooses the stimuli to present to the subject in the form of words, phrases, or pictures, which are flashed on a video monitor under computer control. The three types of stimuli are categorized as “targets,” “irrelevants,” and “probes.” Targets are made relevant and noteworthy to the subject by giving him or her a list of the targets before the test is administered. Since they are noteworthy, they should elicit a P300 response. A second set of stimuli are irrelevant to the event or activity, although they could be plausible substitutes for actual details of the event or activity. These stimuli should not elicit a P300 response. Interspersed with the irrelevant stimuli are less frequent stimuli called probes. Probes are unique details of the event or activity that are supposed to be known only to the examiner or investigator and the subject. For a subject with knowledge of the event or activity, probes should elicit a P300. For a subject lacking that knowledge, probes should be indistinguishable from the irrelevants and should not elicit a P300. The responses to the three types of stimuli are compared using a statistical method, which according to the developer, can yield an “information present” (i.e., the subject recognized the information) or “information absent” (i.e., the subject did not recognize the information) result. According to the developer, Brain Fingerprinting, using P300 analysis, can yield results with a statistical confidence level in excess of 95 percent. He has further stated that MERMER provides the same results as the P300, but with a higher confidence level—99 percent or more—because it records more data points. In addition, he has stated that his research trials have resulted in a 100 percent accuracy rate for determinations of information present or information absent. In April 2000, the developer administered the Brain Fingerprinting test to an individual convicted of murder in Iowa in 1978. In November 2000, this individual subsequently petitioned an Iowa district court for postconviction relief, arguing, among other things, that the Brain Fingerprinting test results demonstrated his innocence. The court addressed the Brain Fingerprinting evidence in a written ruling dismissing the application for postconviction relief. The court ruled that the Brain Fingerprinting evidence was unlikely to have changed the result of the defendant’s trial. In this regard, the court observed that, although the P300 effect was well established, neither the MERMER nor the developer’s mathematical model was well accepted in the scientific community or had been subject to independent testing or peer review. The court also remarked that the selection of probe stimuli was subjective and did not, in this case, meet the developer’s own selection criteria because various stimuli were not sufficiently significant or had been disclosed to the defendant at trial. CIA, DOD, FBI, and Secret Service do not foresee using the Brain Fingerprinting technique for their operations because of its limited application. Both CIA and DOD officials, for example, expressed the need for a tool for screening purposes, for which Brain Fingerprinting is not designed. The Secret Service indicated that the agency has had a high success rate with the polygraph as an interrogative and screening tool and therefore saw limited use for the technique. Within FBI, the Laboratory Division concluded that Brain Fingerprinting had limited applicability to FBI’s investigative and screening functions and identified other research and operational concerns that would preclude its usefulness. From their experiences with the developer’s research between 1991 and 1993, CIA officials concluded that Brain Fingerprinting had limited applicability to CIA’s operations. Accordingly, CIA decided that it was not worth investing more funds to continue the developer’s research. Specifically, CIA officials told us that the technique had limited application to CIA activities because it did not have a screening capability, which is of primary interest to CIA. These officials explained that to administer Brain Fingerprinting, an investigator must know enough details of a particular event to test an individual for knowledge of that event. For example, these officials said that using Brain Fingerprinting to determine an agent’s involvement in espionage would be difficult because the investigator would be hard-pressed to identify unique stimuli; in counterintelligence, specific details are not always available because spying is not always known to have taken place. Moreover, CIA officials indicated that a perceived operational limitation of the technique was that it required a trained scientist to administer the Brain Fingerprinting test. In addition, CIA officials indicated that as an ordinary step in evaluating advanced research and development work, the agency had assembled a panel of independent researchers in 1993 to assess the analytic methods employed by the developer to ensure that they were scientifically sound and defensible. CIA officials stated that while the panel indicated that the technique appeared interesting, it was not able to assess the validity of the work because the developer would not provide the algorithmic information that was critical to completing such an assessment. According to CIA officials, the developer considered the information proprietary. Those officials indicated that no additional research funding was provided following the panel evaluation. Overall, DOD officials indicated that Brain Fingerprinting has limited applicability to DOD’s operations. According to these officials, DOD priorities are for screening prospective and current employees. However, as acknowledged by its developer, Brain Fingerprinting is not designed as a screening tool. DOD’s Polygraph Institute indicated that, with a limited budget of $400,000 a year, it focuses its resources on conducting research related to employment screening techniques, which is a major area of interest for DOD. The Polygraph Institute also indicated that it is currently funding other brain wave detection of deception research, which the agency believes may lead to applications that could meet DOD’s needs. Regarding Brain Fingerprinting’s applicability to criminal investigations, DOD officials acknowledged that DOD conducts a limited number of specific issue examinations where the technique could be applied. DOD officials indicated that most DOD criminal investigations do not lend themselves to a Guilty Knowledge Test-based technique, such as Brain Fingerprinting, because these kinds of investigations typically lack the specific information that is needed for administering such a test and because knowledge of the discrete elements of an event or activity may not be limited to only the investigator and the perpetrator. According to FBI officials, in 1993, the Laboratory Division’s Polygraph Unit and CIA collaborated in an effort to evaluate and validate the Brain Fingerprinting test. At that time, the Polygraph Unit concluded the following. The developer had not presented sufficient information to demonstrate validity or the underlying scientific basis of his assertions. For example, the FBI asked the developer to provide details of all tests conducted, particularly in a law enforcement setting, which would support validation. FBI officials indicated that the developer maintained that his technique was proprietary. The technique had limited applicability and usefulness to FBI investigative and personnel security matters. The research expenses, equipment, and training costs exceeded any perceived benefit. According to the developer, only individuals with advanced academic degrees—trained in psychophysiology or a related science—could be used to operate the system. The Polygraph Unit indicated that this eliminated a large segment of the FBI population as potential operators. FBI officials indicated that, in 1999, the Laboratory Division assembled a panel of reviewers and conducted another evaluation of the technique, based on a demonstration provided by the developer. The panel concluded that since substantially no additional research had been done since 1993, the conclusions that had been reached at that time had not changed. In addition, the panel raised concerns about the technique’s limited utility for employment screening applications and security matters. Furthermore, the panel indicated that the developer had not done research on the effects of external variables on brain activity, such as drugs, alcohol, or hallucinogenic drugs. FBI officials who participated in the panel explained that Brain Fingerprinting relies on retained memory, which they do not believe is always a reliable record of events. Thus, they were concerned about possible changes or deletions from memory. These officials further explained that, as part of evaluating the validity of Brain Fingerprinting as an investigative technique, they must understand the effects of alcohol and other drug use on the brain in its processes for storing and retrieving information. Separately, two FBI agents who had conducted research with the developer expressed a different view. These individuals, in the Behavioral Science Unit and Laboratory Division, believe that Brain Fingerprinting has potential for use in FBI criminal investigations. Both agents, however, recognize that FBI’s current investigative techniques and practices do not require documenting the type of incidental crime scene information that could be used in constructing the probe stimuli. Specifically, they indicated that FBI agents and investigators do not record this kind of detailed information on the form that FBI uses to document crime scene information during an investigation. One of these agents pointed out that these investigators and agents would need to be trained in collecting specific and detailed crime scene information—such as the color of a sofa—that may not normally appear relevant at a crime scene or that had nothing to do with the crime committed, but could prove important as a probe stimulus. This agent also indicated that FBI would need to establish a means for protecting the crime scene information from public disclosure so as not to jeopardize the integrity of the test. The agent pointed out, however, that FBI’s use of this technique would require a shift in FBI’s investigative and training methods, which is essentially a policy issue that would have to be addressed by FBI management. One of these agents believes that while Brain Fingerprinting is ready for forensic application, it could benefit from continued research and development, such as refining the probe stimuli and determining whether certain types of probes are more likely to be remembered than others. In addition, this agent indicated that because drugs and alcohol are frequently used in committing crimes, research is needed to determine what effect they may have on memory. The second agent believes that Brain Fingerprinting is not ready for operational use and needs more research to be able to establish its viability in criminal cases. An official representing the Forensic Services Division indicated that, in 1998, the Secret Service reviewed information provided by the developer and consulted with a CIA official because of the official’s knowledge of and experience with the Brain Fingerprinting technique. The Service subsequently concluded that the technique had limited application to Secret Service activities. The official further indicated that the agency has had a high success rate with the polygraph as an interrogative and screening tool. In letters dated October 5, 2001, we requested comments on a draft of this report from CIA, DOD, Secret Service, FBI, and the developer of the Brain Fingerprinting technique, Dr. Farwell. In addition, we requested that the three scientists we interviewed—Drs. Donchin, Iacono, and Rosenfeld— review our summaries of their views for technical accuracy and clarification. Overall, CIA, DOD, Secret Service, and FBI agreed with the report and our presentation of their views. On October 17, 2001, we met with Dr. Farwell to discuss the draft report. At that time, he indicated that he had no comments or technical corrections on the report. In addition, Drs. Donchin, Iacono, and Rosenfeld separately provided technical comments and clarifications, which we have included where appropriate. CIA and DOD provided oral comments on a draft of this report. Specifically, CIA’s Directorate of Science and Technology indicated agreement with the contents of the report and had no other comments. DOD’s Office of the Assistant Secretary of Defense for Command, Control, Communications and Intelligence indicated DOD’s concurrence with the report and restated its position that the Brain Fingerprinting technique had limited application to DOD’s operations. The Forensic Services Division of the Secret Service provided written comments that essentially reiterated its position that Brain Fingerprinting had limited applicability to the Secret Service. Those comments are included in appendix II. FBI’s Office of Public and Congressional Affairs provided the Bureau’s oral comments, which we have incorporated in this report. The Office also submitted the Bureau’s written comments, which we have included in appendix III. Specifically, FBI indicated that the report fairly reflected the FBI’s position that the technique has limited applicability and usefulness to FBI investigative and personnel security matters. Further, FBI indicated that—on the basis of its own research in forensic science and the scientific views expressed in this report—it strongly disagreed with one of its agents’ assessments of the technique. As discussed earlier in the report, this agent had indicated that while the technique could benefit from continued research and development, it was nevertheless ready for forensic application. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date. At that time, we will send copies to appropriate congressional committees; the Attorney General; Secretary of DOD; Directors of CIA, FBI, Secret Service, and Office of Management and Budget; and other interested parties. Copies of this report will also be available to others on request. If you or your staff have any questions, please call Linda Watson or me at (202) 512-8777. Key contributors to this report were Christine Davis, Sam Hinojosa, Brenda Rabinowitz, Keith Rhodes, and Anne Rhodes-Kline. The purpose of this appendix is to provide additional information on the Brain Fingerprinting technique. Specifically, we interviewed three scientists who were familiar with the technique: Emanuel Donchin, Ph.D.; William Iacono, Ph.D.; and J. Peter Rosenfeld, Ph.D. Each scientist shared his view of the technique, raising questions and providing insights related to some of the methods that underlie Brain Fingerprinting. These scientists expressed a need for more research to demonstrate Brain Fingerprinting’s application as an investigative tool. However, these views are not representative of scientists’ views in general, nor do they represent a complete or systematic review of the technique. The following sections provide the views of the three scientists. Dr. Donchin co-authored a journal article with Dr. Farwell in 1991 in which use of the P300 in a Guilty Knowledge Test was first described. Dr. Donchin believes that the procedure described in the article (labeled more recently as “Brain Fingerprinting” by Dr. Farwell) utilizes the scientifically well-established observation that rare events (i.e., stimuli) presented within the so-called “oddball paradigm” will elicit a P300 component of the event-related potential. He indicated that a large body of peer-reviewed scientific literature, developed since 1965, supports this observation. However, Dr. Donchin believes that the specific application of the oddball paradigm for interrogations requires much further research. For example, he believes that the effectiveness of the Brain Fingerprinting test and its validity depends to a large extent on the events (i.e., stimuli) of which the oddball sequence is constructed. Specifically, he believes that the interpretation of the Brain Fingerprinting test results depends on the selection of the probe stimuli, which is left to the examiner’s subjective judgment and skill in utilizing the available case information. Dr. Donchin indicated that a consequence of using a subjective method for choosing probe stimuli is the possibility of producing “false positives” (i.e., an innocent subject that would test positive when presented with a probe stimulus) or “false negatives” (i.e., the items chosen as probes because of their presumed association with the crime may not have been noticed by the subject during the commission of the crime). As an example, he provided a hypothetical case in which a person’s involvement in a crime was inferred from the fact that the person produced a P300 response to pictures of people who were present at the crime scene. He said that the possibility exists that these individuals resemble close relatives of the suspect, resulting in an elicitation of a P300 response that could be misinterpreted as an indication of guilt. Dr. Donchin believes that a more systematic and objective method for identifying and choosing the events for use in the oddball sequence is needed before the technique could be trusted to yield unambiguous determinations. Dr. Donchin also indicated that he believes it is important to realize that memory is an active, creative process and not a passive repository of stored images. He believes that while the P300 is a well-established and documented phenomenon for determining whether an event (i.e., stimulus) has been classified as an item of a rare category, it is not clear that every item that is classified is one to which the person has been exposed to in the past. He referred to the phenomenon of “false memory” and said he believes that research has amply demonstrated that individuals can report a vivid memory that may be quite false. For example, a subject presented with a list of sleep-related items—such as “bed,” “sheet,” “dream,” and “snore”—will be certain that he or she had also been presented with the word “sleep,” even though it had not been included among the items presented. Dr. Donchin pointed out that the “falsely recognized item,” however, will elicit a sizable P300 response. In addition, Dr. Donchin believes that more research is needed to understand the effects of age; substances, such as alcohol and drugs; and psychological disorders on memory and the P300. Dr. Iacono believes that Brain Fingerprinting is based on a documented and well-established phenomenon—the P300 response—as an indicator of a novel or unexpected stimulus event. However, he indicated that far fewer studies have examined the P300’s potential to identify memories that are stored in an individual’s brain. Hence, as an indicator of memory, the technique is less established. Dr. Iacono believes that the Brain Fingerprinting technique is in its early stages of development and could benefit from more field research and testing before being applied to actual criminal investigations for the following reasons. For one, he believes that research has shown that investigating a murder in the field is entirely different from investigating a murder in a lab. Further, he believes that the technique could benefit from additional field research and testing to develop the probe stimuli. He believes that selecting the appropriate probe stimuli can be a subjective process, which he does not perceive as a criticism of the technique. However, he suggests that additional field research and testing be done on real-life applications to help identify which probes are better suited for the test. He also suggests a need for more field research to determine the effects that drugs and alcohol intoxication—at the time the crime is committed—may have on subsequent measurement of the P300. In addition, he believes that it is possible that certain drugs taken at the time of the Brain Fingerprinting test could affect memory and thus, the validity of the test. Dr. Iacono does not believe adequate research has been done in this area to understand the effects of these chemicals on the Brain Fingerprinting test. He added that although Brain Fingerprinting is unproven in the field, he is confident that it will prove itself for many applications, such as the investigation of carefully planned premeditated crimes. On a separate issue, Dr. Iacono indicated that he employed the same statistical method and decision rules the developer used in the 1991 article by Farwell and Donchin, which Dr. Iacono noted have been peer reviewed and are well established in the scientific community. Dr. Iacono stated that he assumes that the developer is still using those decision rules in interpreting the results of the Brain Fingerprinting test. However, Dr. Iacono indicated that he has not replicated the decision rules that the developer used after the 1991 article. Dr. Rosenfeld believes that a considerable amount of research and field testing is necessary to establish the validity of event-related potential measures in detecting deception using a Guilty Knowledge Test. He indicated that only one field test has applied the Guilty Knowledge Test in a law enforcement setting, which resulted in an accuracy rate of about 44 percent. In addition, Dr. Rosenfeld does not believe that the developer had done the extensive validation of the test items for field use that has been recommended by the Guilty Knowledge Test’s main proponent.Specifically, he believes that in administering the Brain Fingerprinting test to the defendant in the Harrington case, the developer used “art rather than science” in developing the stimuli that were administered to the defendant. He questioned how one would know whether the items selected for a guilty knowledge scenario would be sure to work on any guilty party. In addition, Dr. Rosenfeld said he believes there has been only one peer-reviewed journal article—the 1991 Farwell and Donchin article previously mentioned—that includes the developer’s methods. Dr. Rosenfeld also indicated he does not believe that memory automatically stores all of life’s experiences forever. He indicated that current research has shown that memory is affected by various chemicals and conditions, such as alcohol and drugs, brain damage, mental illness, and extreme anxiety, during crime situations. He pointed to the example of extreme anxiety, suggesting that if someone just killed his wife, anxiety might prevent him from noticing what color shoes she was wearing. He does not believe the developer has done research on these issues. In terms of the Brain Fingerprinting’s test results, Dr. Rosenfeld questioned the developer’s claim of a 100-percent accuracy rate. For example, he raised concerns regarding whether the developer omitted inconclusive results from the totals, which would affect the overall accuracy rate. Further, Dr. Rosenfeld believes the accuracy rate would be lower in the field, where variables cannot be so well controlled. Moreover, he believes that the developer’s criterion for guilt is that 90 percent of the bootstrapping iterations of his analysis be positive. Dr. Rosenfeld stated that, in experimental psychology journals, the 95-percent criterion is generally used and that too lenient a criterion will ordinarily make more guilty decisions but will also produce more false positives (i.e., innocents judged guilty). Furthermore, Dr. Rosenfeld believes that the P300 is a good index of recognition, but an indirect index of deception. It assumes that if the subject states that he or she does not recognize the murder weapon, yet elicits a P300 when he or she sees it, then the subject is lying. He adds that such a conclusion leads to a reasonable, but not infallible inference that the subject is lying. However, a P300 response only indicates that there is something special and recognizable to him or her about that weapon— maybe because the subject committed the murder, but maybe because he or she read about the weapon in the news or because a brother has such a weapon. Dr. Rosenfeld indicated that there are no direct deception indices known at present but noted that researchers are working on one.","Federal law enforcement and intelligence agencies are seeking to add new techniques to their arsenal of investigative tools. ""Brain fingerprinting"" measures brain wave responses to determine whether an individual recognizes certain details of an event or activity. Because the technique requires specific information about the event that would be known only to the perpetrator and the investigator, Brain Fingerprinting is not designed as a screening tool--a function that involves questioning a subject about events unknown to the investigator. Instead, an investigator would be able to use certain information as evidence for or against a subject. For example, the technique could be used to determine whether a subject has knowledge of details about a crime. Officials representing the Central Intelligence Agency, the Department of Defense, the Secret Service, and the Federal Bureau of Investigation do not forsee using the brain fingerprinting technique because of its limited use. Furthermore, given the technique's limitations, the research expenses, equipment, and training costs are perceived to exceed benefits."
"If IRS’s budget request is approved, IRS will have more than 3,400 staff years that can be assigned to new or existing activities in fiscal year 2003. These include the 1,179 additional staff years requested in the budget and the 2,287 staff years that IRS determined could be redirected elsewhere in the organization due to projected savings from several improvement projects and workload decreases. These 3,400 staff years can make a real impact on IRS’s performance if they are targeted to selected areas. However, the availability of these staff years depends on the projected savings being realized and no significant unanticipated expenses. In addition, it is difficult to evaluate the effect that these additional and redirected staff years will have on IRS’s operations because the budget is not well-linked to performance goals in some important areas. With respect to that part of the budget request for information technology, IRS (1) did not adequately support the $1.63 billion requested for operation and maintenance of its information systems but (2) did adequately support its $450 million request for business systems modernization. IRS’s fiscal year 2003 budget request is based on several assumptions that could prove optimistic. These include (1) labor and nonlabor savings of 2,287 staff years and $157.5 million from various improvement projects and workload decreases that IRS plans to use elsewhere in the organization, and (2) additional savings of $38.5 million resulting from better business practices that have not yet been identified. Also, IRS may face some unanticipated expenses that, if not funded, could cause it to revise its financial plan for fiscal year 2003. In many respects, this kind of uncertainty is the natural result of a process that requires the development of budget estimates many months before the fiscal year in question. No matter the reason, the end result could be unrealized savings or unexpected expenses that, as in the past, lead to cutbacks in planned hiring—cutbacks that historically have hit IRS’s enforcement programs the hardest. Through use of its strategic planning, budgeting, and performance management process, IRS identified a myriad of expected efficiency improvements, technological enhancements, labor-saving initiatives, and workload decreases that it projects will enable it to redirect $157.5 million in its base budget to higher-priority areas. Examples include (1) saving over $67 million from re-engineering and quality improvement efforts, such as consolidating form printing and distribution operations and updating an antiquated workload selection system to reduce or eliminate the substantial number of tax returns that are ordered but never audited, and (2) reducing the resources used for the innocent spouse program by $13.8 million due to an expected decrease in caseload. We commend IRS for taking the initiative to reassess the allocation of resources in its base budget. However, the congressional justification submitted by IRS in support of its budget request does not explain how IRS developed the labor and nonlabor savings. IRS provided us with information on the overall method used to develop the savings and explained that, in a change from IRS’s previously used top-down process, operating units determined the resource increases and decreases their programs needed. However, IRS did not provide details on how specific savings were computed, such as information on any assumptions used in developing specific estimates. In response to the secretary of the Treasury’s challenge for each Treasury bureau to review all programmatic efforts and reduce or remove those producing little or no value, IRS officials estimated that such a review could save $38.5 million. IRS’s congressional justification notes that the secretary considers this review to be a work in progress and expects bureau heads and financial plan managers “to work creatively on mid- course adjustments” until the final quarter of fiscal year 2003. Accordingly, the congressional justification provides no details on how the $38.5 million will be achieved. Any shortfall in the estimated labor and nonlabor savings or in savings from efforts to reduce or eliminate programs will only be exacerbated if IRS has to absorb unanticipated budget increases. For example, IRS officials estimated that it would cost an additional $69 million if the civilian pay raise included in this budget was increased to achieve parity with the proposed pay raise for the military. In fiscal year 2002, IRS faced unbudgeted cost increases related to rent, pay raises, security, and postage rate increases. As a result, IRS had to delay hiring revenue agents and officers, tax compliance officers, and tax specialists. According to IRS, “the lack of full funding for non-labor inflation over the years has greatly reduced the IRS ability to cover pay raise costs and other legitimate cost increases by reducing non-labor costs, leaving the IRS with the sole alternative of reducing staff.” IRS noted that “these budget constraints forced the IRS to reduce 1,364 FTEs in the 2002 plan.” Although we do not have specific evidence of how this FTE reduction affected IRS’s operations, IRS data does indicate that the number of revenue agent FTEs in its current financial plan for fiscal year 2002 (11,836) is 691 fewer than the actual revenue agent FTEs in fiscal year 2000 (12,527)—despite funding of an initiative in fiscal years 2001 and 2002 that, among other things, was to increase the number of revenue agent FTEs. The Government Performance and Results Act of 1993 requires agencies to establish linkages between resources and results. With this requirement, Congress hoped to focus agencies on achieving better results for the American public. Congress also hoped to gain a better understanding of what is being achieved in relation to what is being spent. In some respects, IRS’s congressional justification has good links between the resources being requested and IRS’s performance goals. For example, IRS’s budget includes an increase of 213 FTEs and $14.1 million to improve its telephone level of service, and its performance measures show an expected increase in toll-free telephone level of service from 71.5 percent in fiscal year 2002 to 76.3 percent in fiscal year 2003. However, in other important areas, the congressional justification is not well-linked to performance goals. In some instances, there are no performance goals against which Congress can hold IRS accountable. In other instances, there seem to be inconsistencies between the amount of resources being requested and the expected change in performance or workload. A significant example of missing performance goals involves IRS’s efforts to address major areas of systematic noncompliance. In February 2002, the commissioner of Internal Revenue identified four such areas: (1) misuse of devices, such as trusts and passthroughs, to hide income; (2) use of complex and abusive corporate tax shelters to reduce taxes improperly; (3) failure to file and pay large accumulations of employment taxes; and (4) erroneous refund claims, which include claims made under the Earned Income Credit (EIC) program. The budget request includes increased resources for compliance but, except for the EIC program, it is unclear from IRS’s congressional justification how many resources IRS intends to devote to each of these problems. And, for none of these areas, including the EIC program, does the congressional justification include performance measures and goals that Congress can use to assess IRS’s progress in addressing these major compliance problems. IRS’s congressional justification is clear about the amount of resources IRS plans to devote to EIC compliance efforts because the budget request calls for the continuation of a separate appropriation for that program. If approved, it will be the sixth year of targeted funding for the EIC program. IRS’s compliance efforts under this program have prevented the payment of hundreds of millions of dollars of improper EIC claims. However, the most recent IRS information shows that the rate of EIC noncompliance is still very high. According to IRS’s report on its analysis of EIC compliance rates on tax year 1999 returns filed in 2000, (1) about one-half of the 18.8 million returns on which taxpayers claimed the EIC involved overclaims and (2) of the estimated $31.3 billion in EIC claims made by taxpayers who filed returns in 2000, between $8.5 billion and $9.9 billion should not have been paid. Audit coverage is another area where performance goals would help Congress assess IRS’s progress. IRS states in its congressional justification that it will increase the resources for stabilizing audit rates by 368 FTEs and $24 million. Although the congressional justification states that audit rates have fallen, the justification does not include any information about current audit rates or what rates IRS expects to achieve in 2003. Given the amount of resources that could be involved in dealing with the four major compliance problems cited by the commissioner and increasing overall audit coverage, the Subcommittee may want to ask IRS to provide (1) more specifics on the level of resources it plans to devote to each of these areas and its performance measures and goals for each area and (2) its views on maintaining a separate appropriation for the EIC versus combining in one appropriation those resources with the resources being requested for other compliance work, which could give IRS more flexibility in deciding how best to allocate its resources among all of its compliance needs. The budget request and performance goals included in the congressional justification are, at times, inconsistent. Some of those inconsistencies might suggest that additional resources beyond those identified by IRS are available for redirection. Specific examples of inconsistencies include the following: A requested increase of 476 staff years and $20.7 million for “increased Offer-in-Compromise cases” is inconsistent with IRS’s performance goal for that program, which shows that the number of cases processed is expected to decrease from 185,000 in 2002 to 104,600 in fiscal year 2003. This requested increase also conflicts with our recent evaluation of the program that shows that IRS projected that the number of staff years needed would decrease from 1,818 in fiscal year 2002 to 1,224 in fiscal year 2003. In response to our question about this, IRS officials said that the staff year increase is to replace revenue officers who currently handle the cases so there is not a net increase in staff years for the offer program. This does not help explain why IRS is asking for an increase in resources when the workload is expected to decline and IRS had projected a decreased need for staff in the program. According to IRS’s budget request, the field and electronic/correspondence exam units will receive about the same number of staff years as the year before, while in terms of dollars, the field exam unit will receive an increase of less than 3 percent and the electronic/correspondence unit will receive an increase of about 7 percent. However, IRS’s performance measures show the field exam unit is expected to examine 33 percent more individual returns and almost 35 percent more business returns while the electronic/correspondence unit is expected to increase the number of correspondence examinations by 32 percent. It is not clear from the congressional justification how IRS expects to do so much more work with just a small increase in resources. IRS told us that one reason for the apparent inconsistency is that correspondence audits run on a 2- year cycle, with a high number of case starts in one year and a large number of case closures in the next year. IRS’ budget request includes an additional 197 staff years and $8.3 million for processing a projected growth in the total number of primary returns filed from about 225.9 million returns in fiscal year 2202 to about 230.0 returns in fiscal year 2003. However, according to IRS’s performance measures, that projected growth is the net of an increase of about 7.6 million returns filed electronically and a decrease of about 3.4 million returns filed on paper. That decline in the more costly to process paper returns would seem to argue against the need for additional processing resources. In response to our question about this, IRS acknowledged that the number of paper returns was expected to decline but said, nonetheless, that its computation of the number of additional FTEs needed was “based on an estimate of direct hours needed to process expected paper returns.” Because the congressional justification provides inadequate information to explain the apparent inconsistencies discussed in the preceding section and because, in some respects, those inconsistencies suggest that additional resources might be available for redirection to other purposes, the Subcommittee may want to ask IRS for additional information in support of those parts of its budget request. IRS is requesting $2.13 billion and 7,449 staff years in information technology (IT) resources for fiscal year 2003. This includes (1) $450 million for the agency’s multiyear capital account that funds contractor costs for the Business Systems Modernization (BSM) Program, which is adequately justified, and (2) $1.68 billion and 7,449 staff years for information systems, of which $1.63 billion for operations and maintenance is not adequately justified. With respect to the $1.63 billion request for operations and maintenance, IRS was unable to provide sufficient support for us to identify possible budget reductions. Key provisions of the Clinger-Cohen Act, the Government Performance and Results Act, and Office of Management and Budget (OMB) guidance on budget preparation and submission (e.g., Circular No. A-11) require that, before requesting multiyear funding for capital asset acquisitions, agencies develop sufficient justification for these investments. This justification should reasonably demonstrate how proposed investments support agency mission operations and provide positive business value in terms of expected costs, benefits, and risks. Since the BSM appropriation was established in fiscal year 1998, we have consistently reported that IRS has not developed adequate justification for its budget requests, and we have proposed that Congress consider reducing them. During this same time, we have repeatedly recommendedthat IRS put in place an enterprise architecture (modernization blueprint) to guide and constrain its business system investments. Use of such a blueprint is a practice of leading public and private sector organizations. Simply stated, this architecture provides a high-level roadmap for business and technological change from which agencies can logically and justifiably derive their budget requests and capital investment plans. In response, IRS has developed various versions of an enterprise architecture, which we have continued to review and make recommendations for improvement in. IRS recently approved a new version of this architecture (version 2.0), which, based on a briefing to us and others, appears to provide robust descriptions of IRS’s current and target business and technology environments. IRS has also drafted, and executive management is reviewing, the associated high-level transition plan that identifies and conceptually justifies needed investments to guide the agency’s transition over many years from its current to its target architectural state. IRS’s $450 million request is based on its enterprise architecture as well as related life cycle management and investment management process disciplines for its ongoing project investments. As such, this request is grounded in analyses that meet the statutory and regulatory requirements for requesting multiyear capital investment funding. Pursuant to statute, funds from the BSM account are not available for obligation until IRS submits to the congressional appropriations committees for approval an expenditure plan that meets certain conditions. In November 2001, IRS submitted its fifth expenditure plan seeking approval to obligate the $391 million remaining in the BSM account at that time. In briefings to the relevant appropriations subcommittees and IRS, we reported our concerns about the escalating risk that IRS will be unable to deliver promised BSM system capabilities on time and within budget due to the number and complexity of ongoing and planned systems acquisition projects and the continued lack of certain key modernization management controls and capabilities. In approving the expenditure plan, the appropriations subcommittees directed IRS to reconsider the scope and pace specified in the November 2001 expenditure plan to ensure that the number and complexity of modernization projects underway is commensurate with IRS’s management capacity and fully establish and implement all process controls needed to effectively manage the modernization effort prior to the submission of IRS’s next expenditure plan. In response to these and other concerns raised by the appropriations committees and us, IRS has committed to aligning the pace of the BSM program with the maturity of the organization’s management controls and management capacity and is currently conducting a reassessment of the projects it plans to deploy during fiscal year 2002. In addition, IRS has taken appropriate steps toward implementing missing management controls. Leading private and public sector organizations have taken a project or system-centric approach to managing not only new investments but also operations and maintenance of existing systems. As such, these organizations identify operations and maintenance projects and systems for inclusion in budget requests; assess these projects or systems on the basis of expected costs, benefits, and risks to the organization; analyze these projects as a portfolio of competing funding options; and use this information to develop and support budget requests. This focus on projects, their outcomes, and risks as the basic elements of analysis and decisionmaking is incorporated in the IT investment management approach recommended by OMB and us. By using these proven investment management approaches for budget formulation, agencies have a systematic method, based on risk and return on investment, to justify what are typically very substantial operations and maintenance budget requests. These approaches also provide a way to hold IT managers accountable for operations and maintenance spending and the ongoing efficiency and efficacy of existing systems. IRS did not develop its information systems request in accordance with these best practices of leading organizations. In particular, the largest elements of IRS’s budget request are not projects or systems. Rather, they are requests for staffing levels or other services. For example, IRS is requesting $240 million for staff and equipment supporting operations and maintenance of desktop computers agencywide, as well as $111 million for staff and equipment supporting its major computing centers’ operations. Further, it is requesting $266 million for telecommunications services contracts. Taken together, these three initiatives constitute about 38 percent of the total $1.63 billion being requested for operations and maintenance, but the budget request gives no indication regarding how these initiatives are allocated to systems. In addition, in developing these requests, IRS did not identify and assess the relative costs, benefits, and risks of specific projects or systems in these areas. Instead, according to IRS officials, they simply took what was spent last year in the categories and added the money to fund cost-of-living and salary increases. IRS officials responsible for developing the IT operations and maintenance budget attributed the differences between IRS practices and those followed by leading organizations to the lack of an adequate cost accounting system, cultural resistance to change, and a previous lack of management priority. To better justify future budget requests, these officials said that they have assessed the strengths and weaknesses of IRS’s budgeting and investment management processes against our IT investment management framework and found significant weaknesses in 15 critical areas. To address the weaknesses, IRS is currently developing capital planning guidance based on our IT investment management framework. This guidance is to be issued by late summer 2002, but a schedule for implementing it has yet to be determined. In addition, IRS has adopted and is in the process of implementing a cost model that is to enable it to account for the full costs of operations and maintenance projects and determine how effectively IRS projects are achieving program goals and mission needs. IRS plans to have the cost model in place and operational by June 30 of this year so that it can validate its fiscal year 2003 information systems appropriation request and begin using it to develop the fiscal year 2004 request. The key to making these plans reality is overcoming the very reasons that have allowed this budgetary formulation and justification weakness to continue unabated—accounting system limitations, cultural resistance, and low management priority. Although IRS has initiated actions to address these weaknesses, we are concerned whether they will be implemented in time to have meaningful impact on formulation of the fiscal year 2004 budget request. For example, IRS has not yet developed a plan and schedule for implementing its IT capital planning guidance. In addition, IRS officials told us that they are already beginning the process to develop the fiscal year 2004 budget. Consequently, until IRS overcomes its obstacles, its future information systems appropriation requests, like its fiscal year 2003 request, will not be adequately justified. To aid IRS in overcoming the barriers to changing how it develops and justifies its information systems appropriation request, we recommend to the commissioner of internal revenue that IRS prepare its fiscal year 2004 information systems budget request in accordance with leading organizations’ best practices. So far this filing season, IRS has processed returns smoothly with one major exception, seen continued growth in electronic filing, and achieved some improvements in telephone service. The one exception to smooth processing has been the large number of errors taxpayers are making related to the rate reduction credit. Although the errors have not affected the timeliness of processing, they have resulted in a significant error correction workload for IRS, the rejection of some electronically filed returns, and an increased demand for telephone assistance that, according to agency officials, is affecting taxpayers’ access to IRS’s telephone assistors. One issue that continues to affect IRS’s ability to assess its filing season performance is missing performance measures. While IRS has measures that provide useful information on some aspects of its service and is making efforts to improve its performance measures, some measures of telephone service are constructed in a way that misses important aspects of the activity being measured and IRS has delayed implementation of some accuracy measures for services provided at walk- in offices. This filing season, IRS experienced very few of the kinds of processing problems, such as those caused by computer programming errors, that it has often experienced at the beginning of a filing season, and the number of returns filed electronically continues to grow. The one major negative in this otherwise positive picture has been the significant number of returns IRS has received with errors related to the rate reduction credit. The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. No. 107-16) directed the secretary of the Treasury to issue advance tax refunds to eligible taxpayers. Accordingly millions of taxpayers received checks of up to $600 between July and December 2001. Taxpayers who did not receive an advance refund as part of that process or who received less than the maximum allowed by law may have been entitled to a rate reduction credit when filing their tax year 2001 returns in 2002. Accordingly, IRS added a line to the individual income tax forms for eligible taxpayers to enter a credit amount and provided a worksheet for taxpayers to use in determining if they were eligible. So far, during the 2002 filing season, the rate reduction credit has led to millions of tax returns with errors. The result has been significant error-correction workloads for IRS and a large increase in the number of error notices sent to taxpayers. In retrospect, at least some of these errors might have been avoided if IRS had taken certain steps to better help taxpayers deal with this new tax return line item. One of the steps IRS took to deal with the large number of errors related to rate reduction credit was to reject certain electronic submissions involving rate reduction credit errors. Even so, electronic filing has continued to grow—although not at a rate that would allow IRS to meet its long-term goal. As table 1 shows, of the approximate 46 million returns that IRS had processed as of March 15, 2002, about 4.7 million, or 10 percent, had errors made by taxpayers or their return preparers—more than twice the error rate at the same time last year but roughly comparable to the error rate IRS expected. Of the approximate 4.7 million returns with errors, about two-thirds, or 3.1 million, had errors related to the rate reduction credit. Taxpayers and return preparers are making various types of errors related to the rate reduction credit. Many taxpayers who did not receive an advance of their rate reduction credit in 2001 and thus should be claiming the credit on this year’s return, are not. Other taxpayers are recording the amount of the credit they received in 2001 on the rate reduction credit line of this year’s return instead of recording zero. And other taxpayers, who are entitled to a credit and are claiming one, are incorrectly computing the amount to which they are entitled. Once IRS recognized that taxpayers and preparers were having problems with the rate reduction credit, it took immediate action in an attempt to minimize future errors and avoid refund delays. IRS posted information to its Web site, began a public awareness campaign that included news releases to media outlets, and provided clarifying information to preparers who file returns electronically. Despite IRS’s efforts, the rate at which taxpayers and return preparers are making errors related to the rate reduction credit has remained relatively constant. Because IRS anticipated an increase in errors this year and because IRS has been able to correct the rate reduction errors relatively quickly, we are not aware of any adverse impact on IRS’s ability to process returns and refunds in a timely manner as a result of the increased error-correction workload. IRS is treating these errors as “math errors”; that is, it corrects the mistake and either adjusts the taxpayer’s refund or notifies the taxpayer of additional tax owed. However, it remains to be seen what happens around April 15, when the largest volume of paper returns are filed. Even if IRS is able to effectively correct the large volumes of erroneous returns throughout the filing season, there are costs involved, including the cost of generating and mailing several million error notices to affected taxpayers and the costs of the resources IRS had to devote to working the increased error-correction workload. Although IRS took several steps after the filing season began in response to the large number of rate reduction credit errors, we believe, in retrospect, that some of those errors might have been prevented if the instructions for Forms 1040, 1040A, and 1040EZ had been more clear. For example, IRS did not highlight the rate reduction credit or the new line on the tax form related to the rate reduction credit on the cover page of the instructions, where IRS alerts taxpayers to changes from the prior year. Instead, IRS highlighted the fact that tax rates were reduced. Only if taxpayers read the paragraph under the highlighted caption “Tax Rates Reduced” would they see mention of the credit. The instructions for Forms 1040, 1040A, and 1040EZ might have also been clearer if IRS had included some information that was included on its Web site. In that regard, the instructions indicate that if a taxpayer received— before any offset—an amount equal to either $600, $500, or $300 based on his or her filing status, the taxpayer is not entitled to a rate reduction credit. There is no further explanation of the term “before any offset”—a term that may be unclear to many taxpayers. However, IRS’s Web site spells out more clearly what is meant by this term, explaining that if taxpayers had their advance payment offset to pay back taxes, other government debts, or past due child support, they cannot claim the rate reduction credit for the amount that was offset. Although the Web site includes this more descriptive information, there is no guarantee that a given taxpayer either has access to or will use the Web site. In retrospect, including the same explanation of “before any offset” in the instructions would have made the instructions clearer. Another step IRS took that has reduced its error-correction workload due to the rate reduction credit was to begin rejecting electronic submissions that involved certain types of errors related to the credit. By doing so, IRS required the taxpayer or return preparer to correct the error before IRS would accept the electronic return. This is consistent with IRS’s traditional practice of rejecting electronic submissions that contain other errors, such as incorrect Social Security numbers. IRS began rejecting electronic submissions with errors involving the rate reduction credit around the beginning of February. As of March 24, 2002, IRS had rejected about 226,000 such submissions. We do not know whether these rejected submissions caused potential electronic filers to file instead on paper. However, as shown in table 2, the number of individual income tax returns filed electronically as of March 29, 2002, has grown by 14.0 percent—an increase over the rate of growth at the same time last year. While this kind of increase is not insignificant, IRS will need larger increases in the future if it is to achieve its goal of having 80 percent of all individual income tax returns filed electronically by 2007. To encourage more electronic filing in 2002, IRS, among other things mailed letters to about 250,000 tax professionals, asking those who had been filing electronically to continue supporting the program and encouraging others to file electronically; mailed about 23 million postcards to certain taxpayers, such as those who had received TeleFile packages in the past 2 years but did not file their tax returns via TeleFile, alerting them to the benefits of electronic filing; and made changes to one program that enabled electronic filers to sign their returns using a personal identification number (PIN) and reinstituted another PIN-based signature program. IRS also redirected its marketing efforts to encourage persons who have been preparing tax returns on a computer but filing on paper to file electronically. Considering that about 40 million computer-prepared returns were filed on paper in 2001, conversion of those returns to electronic filings could go a long way toward helping IRS achieve its 80- percent goal. In our report on the 2001 filing season, we recommended that IRS directly survey tax professionals and taxpayers who file computer-prepared returns on paper to get more specific information on why they are not filing electronically. We have been told that IRS will be undertaking such a survey in the near future. So far this filing season, taxpayers in the queue for telephone assistance are spending less time waiting to talk with an assistor and are getting accurate answers to their tax law questions more often than last year. At the same time, however, the overall rate at which callers are reaching an assistor is lower because many callers are unable to get into the queue for assistance. Telephone assistance is a significant part of IRS’s work. This fiscal year, IRS expects to answer about 108 million telephone calls, about 72 million to be answered via automated services and about 34 million to be answered by about 10,000 full-and part-time telephone assistors, called customer service representatives. Accordingly, the ease with which taxpayers reach IRS by telephone and the accuracy of the assistance they receive are important indicators of how well IRS is performing. IRS’s performance in providing this service has been a perennial problem, and its struggles to improve service have been a topic at hearings held by this Subcommittee for many years. As we reported in December 2001, IRS has made limited progress toward its long-term goal of providing taxpayers “world-class customer service”—service comparable to the best provided by other organizations. In recent years, IRS has made significant strides in developing performance measures to tell how well it is serving taxpayers by telephone. IRS has established a set of measures to focus efforts on enhancing taxpayers’ access to accurate assistance. As shown in table 3, some of these measures indicate significant improvements in taxpayer service when compared to the same period last year. For example, during the first 11 weeks of the 2002 filing season, taxpayers, on average, waited a minute-and-a-half less to speak to an assistor, there was an 18 percentage point improvement in taxpayers reaching assistors in 30 seconds or less, and the quality of tax law assistance, which involves following IRS procedures and providing accurate responses, improved about 11 percentage points. However, there was a 5-point decline in the percentage of callers that attempted to reach an assistor and actually got through and received service (referred to as the customer service representive (CSR) level of service). According to IRS officials, an increased demand for assistance related to the rate reduction credit has been a key factor affecting taxpayer access to assistors. (See appendix I for more detail on the level of access this filing season compared to last and the likely impact of the rate reduction credit.) The increased call volume was not allowed to lengthen the queue. Instead, taxpayers were provided access to automated services, which often results in callers hanging up, or were advised by a recorded message that IRS could not provide assistance. According to IRS officials, several IRS efforts have contributed to improvements in telephone performance. For example, IRS implemented a strategy to improve tax law accuracy that included hiring and training assistors earlier than in past years and putting them on the telephones in December to help hone their skills before the filing season began. IRS also required assistors to be certified that they successfully completed necessary training and could accurately answer calls in their assigned topics and used its computer-based call routing system to help ensure that assistors answered calls only in those topics for which they had been certified. Some officials opined that improvements in accessibility may be linked to IRS’s efforts to establish new performance measures and goals for the call sites this year. For example, each site has a goal for the total number of calls its assistors are to answer in a fiscal year. IRS officials say the new measures have led to improved performance by giving the call sites a clearer understanding of what they are expected to achieve and how their performance helps IRS achieve its goals. IRS executives in the Wage and Investment and Small Business/Self-Employed divisions said that they believe that IRS has been successful in getting employees at all levels of the telephone service organizations to understand and accept the measures and contribute to achieving the goals. IRS officials cited several other service improvement efforts as potentially boosting performance, including initiatives to bring more highly skilled employees on board, increased specialization at the assistor and call site levels, and reduced hours of service to increase the number of assistors available to answer phone calls during the hours when most taxpayers call IRS. We will monitor these and other factors that may have affected IRS’s telephone service as we continue to assess the 2002 filing season. Although IRS’s telephone performance measures provide useful information on some aspects of service to taxpayers, the measures miss other aspects. For example: None of the measures currently reflect how many callers hung up while listening to the menu they hear when calling IRS—although IRS has that data. For example, as of March 16, 2002, according to IRS data, over 7.2 million callers had hung up when listening to the menu this filing season—almost three times greater than the number that hung up last year. IRS officials said it is unclear why more taxpayers were hanging up. However, when IRS streamlined the menu in mid-February, it noted a decline in the hang-up rate, which may indicate that taxpayers were frustrated or confused by the menu. Although IRS assists many callers through automated services—almost 18.2 million calls were answered by automation on the three main assistance lines and the TeleTax line as of March 2, 2002—IRS’s measures only deal with the service provided by assistors. IRS discontinued measuring the level of service provided through automation because this year’s data are not comparable to 2001. Contrary to what its name implies, the CSR level of service measure does not reflect only those calls handled by assistors. Some calls handled through automation are counted as having been answered in computing this measure. Because it includes calls answered through automation, the CSR level of service measure may be overestimating the rate at which assistors are responding to taxpayers. Because we recognize that it is important to limit the number of performance measures to the vital few, we are not recommending that IRS take any action at this time with respect to the matters discussed above. At your request, Mr. Chairman, we are reviewing IRS’s filing season performance measures, including its telephone measures, and plan to issue a report later this year on our results. Taxpayers who visit any one of IRS’s 400 plus Taxpayer Assistance Centers (TAC) can make payments, obtain tax forms and publications, get answers to tax law questions, and get help resolving tax account issues and preparing tax returns. In the past, IRS has used its employees to measure the accuracy of tax law assistance provided by its TACs. In fiscal year 2002, IRS began using contract reviewers in lieu of its employees. Although the accuracy rate reported through mid-March 2002 is encouragingly high, the use of different measurement methodologies precludes valid comparison to the low accuracy rates reported by IRS and the Treasury Inspector General for Tax Administration (TIGTA) in 2000 and 2001, respectively. IRS had planned to begin measuring the accuracy of account and return-preparation assistance in January 2002, but those plans have been delayed until June. Contract reviewers, posing as taxpayers, reported making 388 random visits to TACs between January 1 and March 15, 2002. During each visit, the reviewers asked two tax law questions from the slate of four questions that IRS developed for use this year. One question and a related scenario was developed from each of four tax law categories that most prompted taxpayers to call IRS’s toll-free assistance lines in fiscal year 2001. The contract reviewers reported receiving accurate responses for 652 of the 776 questions or 84 percent. Although this could indicate that accuracy is improving compared to the low accuracy rates reported by IRS in 2000 (24 percent) and TIGTA in 2001 (51 percent), the use of different accuracy measurement methods in the last three filing seasons does not afford a valid basis for comparison. Although the results in each of the 3 years were based on visits to TACs by persons posing as taxpayers, there were differences in such things as the questions the persons asked, the number of weeks covered by the reviews, and the number of sites visited and how they were selected. IRS had planned to begin measuring the accuracy of account- and return- preparation services provided by TACS in January 2002. However, according to field assistance officials, staffing of eight new positions for doing these reviews was initially delayed by an oversight in the announcement process and then by a hiring freeze. Officials now expect to fill the eight positions by June 2002, which, they believe, will still allow time to complete enough quality reviews to establish meaningful fiscal year 2002 baselines for both measures. According to the Director, Field Assistance, the new staff would first complete post-reviews of returns prepared during the filing season. Because most account assistance occurs after the filing season, they would then begin reviewing the accuracy of account assistance provided over the remainder of the year. Mr. Chairman, that concludes our statement. We would be pleased to respond to any questions that you or other members of the Subcommittee may have at this time. As noted earlier, despite some significant improvements in telephone service, the customer service representative (CSR) level of service as of March 16, 2002, was lower than at the same point in time last year. The week-to-week comparisons in figure 1 show that CSR level of service during the first 6 weeks of this filing season was significantly better than or about the same as during the first 6 weeks of the 2001 filing season but was significantly worse during the next 3 weeks. In the following 2 weeks, CSR level of service returned to levels comparable to last year’s performance.","This testimony discusses the Internal Revenue Service (IRS) fiscal year 2003 budget request for the 2002 tax filing season. GAO found that IRS's plans for hiring and redirecting staff may be optimistic because budgets are prepared so far in advance of the fiscal year involved. IRS assumed (1) labor and nonlabor savings of 2,287 staff years and $157.5 million and (2) additional savings of $38.5 million from better business practices. IRS's justification does not always adequately link the resources being requested and the agency's performance goals. Although IRS provided adequate support to justify the $450 million request for its multiyear capital account for business systems modernization, it did not adequately support $1.63 billion of the $1.68 billion requested for its information systems. In the area of agency performance, GAO found that IRS has generally processed returns smoothly and seen continued growth in electronic filing. The one exception to smooth processing has been the large number of errors related to the rate reduction credit. IRS has had to correct millions of returns due to the credit, and taxpayers' call about the credit have greatly increased the demand on IRS's toll-free assistance lines. IRS's performance measures provide useful information to assess its success in assisting taxpayers. However, some measures of telephone service miss important aspects of the activity being measured, and plans to begin measuring some important aspects of IRS's walk-in service have been delayed."
"Federal government agencies and programs work to accomplish widely varying missions. These agencies and programs use a number of public policy approaches, including federal spending,tax laws, tax expenditures, (1) and regulation. (2) In FY2004, estimated federal spending was $2.3 trillion,and taxexpenditures totaled approximately $1 trillion. Estimates of the off-budget costs of federalregulations have ranged in the hundreds of billions of dollars, and corresponding estimates ofbenefits of federal regulations have ranged from the hundreds of billions to trillions of dollars. (3) Given the scope and complexity of these various efforts, it is understandable that citizens,their elected representatives, civil servants, and the public at large would have an interest in theperformance and results of government activities. Evaluating the performance of governmentagencies and programs, however, has proven difficult and often controversial: Actors in the U.S. political system (e.g., Members of Congress, the President,citizens, interest groups) often disagree about the appropriate uses of public funds; missions, goals,and objectives for public programs; and criteria for evaluating success. One person's key programmay be another person's key example of waste and abuse, and different people have differentconceptions of what ""good performance"" means. Even when consensus is reached on a program's appropriate goals andevaluation criteria, it is often difficult and sometimes almost impossible to separate the discreteinfluence that a federal program had on key outcomes from the influence of other actors (e.g., stateand local governments), trends (e.g., globalization, demographic changes), and events (e.g., naturaldisasters). Federal agencies and programs often have multiple purposes, and sometimesthese purposes may conflict or be in tension with one another. Finding and assessing a balanceamong priorities can be controversial and difficult. The outcomes of some agencies and programs are viewed by many observersas inherently difficult to measure. Foreign policy and research and development programs have beencited as examples. There is frequently a time lag between an agency's or program's actions andeventual results (or lack thereof). In the absence of this eventual outcome data, it is often difficultto know how to assess if a program is succeeding. Many observers have asserted that agencies do not adequately evaluate theperformance or results of their programs -- or integrate evaluation efforts across agency boundaries-- possibly due to lack of capacity, management attention and commitment, or resources. (4) In spite of these and other challenges, (5) in the last 50 years both Congress and the President haveundertaken numerous efforts -- sometimes referred to as performance management, performancebudgeting, strategic planning, or program evaluation -- to analyze and manage the federalgovernment's performance. Many of those initiatives attempted in varying ways to use performanceinformation to influence budget and management decisions for agencies and programs. (6) The Bush Administration'srelease of PART ratings along with the President's FY2004 and FY2005 budget proposals, and itsplans to continue doing so for FY2006 and subsequent years, represent the latest of these efforts. The PART was created by OMB within the context of the Bush Administration's broaderBudget and Performance Integration (BPI) initiative, one of five government-wide initiatives underthe President's Management Agenda (PMA). (7) According to the President's proposed FY2005 budget, the goal ofthe BPI initiative is to ""have the Congress and the Executive Branch routinely consider performanceinformation, among other factors, when making management and funding decisions."" (8) In turn, [the PART] is designed to help assess the managementand performance of individual programs. The PART helps evaluate a program's purpose, design,planning, management, results, and accountability to determine its ultimate effectiveness. (9) The PART evaluates executive branch programs that have funding associated with them. (10) The Bush Administrationsubmitted approximately 400 PART scores and analyses along with the President's FY2004 andFY2005 budget proposals, (11) with the intent to assess programs amounting to approximately20% of the federal budget each fiscal year for five years, from FY2004 to FY2008. For FY2004,OMB assessed 234 programs. For FY2005, a further 173 programs were assessed. (12) For these two yearscombined, OMB said that about 40% of the federal budget, or nearly $1.1 trillion, had been""PARTed."" In releasing the PART, the Bush Administration asserted that Congress's current statutoryframework for executive branch strategic planning and performance reporting, the GovernmentPerformance and Results Act of 1993 (GPRA), [w]hile well-intentioned ... did not meet its objectives. Through the President's Budget and Performance Integration initiative, augmented by the PART, theAdministration will strive to implement the objectives of GPRA. (13) As discussed later in this report, this move and the PART's perceived lack of integration with GPRAwas controversial among some observers, in part because OMB, and by extension the BushAdministration, were seen as ""substituting [their] judgment"" about agency strategic planning andprogram evaluations ""for a wide range of stakeholder interests"" under the framework established byCongress under GPRA. (14) Under GPRA, 5 U.S.C. § 306 requires an agency whendeveloping its strategic plan (15) to consult with Congress and ""solicit and consider the views andsuggestions of those entities potentially affected by or interested in such a plan."" Some observershave recommended a stronger integration between PART and GPRA, thereby more stronglyintegrating executive and congressional management reform efforts. (16) OMB developed seven versions of the PART questionnaire for different types ofprograms. (17) Structurally, each version of the PART has approximately 30 questions that are divided into foursections. Depending on how the questionnaire is filled in and evaluated, each section provides apercentage ""effectiveness"" rating (e.g., 85%). The four sections are then averaged to create a singlePART score according to the following weights: (1) program purpose and design, 20%; (2) strategicplanning, 10%; (3) program management, 20%; and (4) program results/accountability, 50%. Under the overall supervision of OMB and agency political appointees, OMB's programexaminers and agency staff negotiate and complete the questionnaire for each ""program"" -- therebydetermining a program's section and overall PART scores. In the event of disagreements betweenOMB and agencies regarding PART assessments, OMB's PART instructions for FY2005 stated that""[a]greements on PART scoring should be reached in a manner consistent with settling appeals onbudget matters."" (18) Under that process, scores are ultimately decided or approved by OMB political appointees and theWhite House. When the PART questionnaire responses are completed, agency and OMB staffprepare materials for inclusion in the President's annual budget proposal to Congress. According to OMB's most recent guidance to agencies for the PART, the definition of program will most often be determined by a budgetary perspective. That is, the ""program"" thatOMB assesses with the PART will most often be what OMB calls a program activity , or aggregationof program activities , as listed in the President's budget proposal: One feature of the PART process is flexibility for OMBand agencies to determine the unit of analysis -- ""program"" -- for PART review. The structure thatis readily available for this purpose is the formal budget structure of accounts and activitiessupporting budget development for the Executive Branch and the Congress and, in particular,Congressional appropriations committees.... Although the budget structure is not perfect for programreview in every instance -- for example, ""program activities"" in the budget are not always theactivities that are managed as a program in practice -- the budget structure is the most readilyavailable and comprehensive system for conveying PART results transparently to interested partiesthroughout the Executive and Legislative Branches, as well as to the public at large. (19) The term program activity is essentially defined by OMB's Circular No. A-11 as the activities andprojects financed by a budget account (or a distinct subset of the activities and projects financed bya budget account), as those activities are outlined in the President's annual budget proposal. (20) As noted later, thisbudget-centered approach has been criticized by some observers, because this budget perspective didnot necessarily match an agency's organization or strategic planning. For each program that has been assessed, OMB develops a one-page ""Program Summary""that is publicly available in electronic PDF format. (21) Each summary displays four separate scores, as determined byOMB, for the PART's four sections. OMB also made available for each program a detailed PART""worksheet"" to briefly show how each question and section of the questionnaire was filled in,evaluated, and scored. (22) OMB states that the numeric scores for each section are used to generate an overalleffectiveness rating for each ""program"": [The section scores] are then combined to achieve anoverall qualitative rating of either Effective, Moderately Effective, Adequate, or Ineffective. Programs that do not have acceptable performance measures or have not yet collected performancedata generally receive a rating of Results Not Demonstrated. (23) The PART's overall ""qualitative"" rating is ultimately driven by a single numerical score. However,none of OMB's FY2005 budget materials, one-page program summaries, or detailed worksheetsdisplays a program's overall numeric score according to OMB's PART assessment. OMB stated thatit does not publish these single numerical scores, because ""numerical scores are not so precise as tobe able to reliably compare differences of a few points among different programs.... [Overall scores]are rather used as a guide to determine qualitative ratings that are more generally comparable acrossprograms."" (24) However,these composite weighted scores can be computed manually using OMB's weighting formula. (25) The only PART effectiveness rating that OMB defines explicitly is ""Results NotDemonstrated,"" as shown by the excerpt above. (26) The Government Accountability Office (GAO, formerly theGeneral Accounting Office) has stated that ""[i]t is important for users of the PART information tointerpret the 'results not demonstrated' designation as 'unknown effectiveness' rather than as meaningthe program is 'ineffective.'"" (27) The other four ratings, which are graduated from best to worst,are driven directly by each program's overall quantitative score, as outlined in the following table. Table 1. OMB Rating Categories for thePART Source : OMB's website, at http://www.whitehouse.gov/omb/part/2004_faq.html , ""PARTFrequently Asked Question"" #29. This website appears to be the only publicly available locationwhere OMB indicates how OMB translated numerical scores into overall ""qualitative"" ratings. OMB has stated that it wants to make the PART process and scores transparent, consistent,systematic, and objective. To that end, OMB solicited and received feedback and informalcomments from agencies, congressional staff, GAO, and ""outside experts"" on ways to change theinstrument before it was published with the President's FY2004 budget proposal in February2003. (28) In an effortto increase transparency, for example, OMB made the detailed PART worksheets available for eachprogram. To make PART assessments more consistent, OMB subjected its assessments to aconsistency check. (29) That review was ""examined,"" in turn, by the National Academy of Public Administration(NAPA). (30) To makethe PART more systematic, OMB established formal criteria for assessing programs and created aninstrument that differentiated among the seven types of programs (e.g., credit programs, research anddevelopment programs). With regard to the goal of achieving objectivity, OMB made changes to the draft PARTbefore its release in February 2003 with the President's budget. For example, OMB eliminated adraft PART question on whether a program was appropriate at the federal level, because OMB foundthat question ""was too subjective and [assessments] could vary depending on philosophical orpolitical viewpoints."" (31) However, OMB went further to state: While subjectivity can be minimized, it can never becompletely eliminated regardless of the method or tool. In providing advice to OMB Directors,OMB staff have always exercised professional judgment with some degree of subjectivity. That willnot change.... [T]he PART makes public and transparent the questions OMB asks in advance ofmaking judgments, and opens up any subjectivity in that process for discussion and debate. (32) OMB career staff are not necessarily the only potential sources for subjectivity in completing PARTassessments. Subjectivity in completing the PART questionnaire and determining PART scorescould potentially also be introduced by White House, OMB, and other political appointees. Furthermore, in a guidance document for the FY2005 and FY2006 PARTs, OMB has notedthat performance measurement in the public sector, and by extension the PART, have limitations,because: information provided by performance measurement isjust part of the information that managers and policy officials need to make decisions. Performancemeasurement must often be coupled with evaluation data to increase our understanding of whyresults occur and what value a program adds. Performance information cannot replace data onprogram costs, political judgments about priorities, creativity about solutions, or common sense. Amajor purpose of performance measurement is to raise fundamental questions; the measures seldom,by themselves, provide definitive answers. (33) In OMB's guidance for the FY2006 PART, OMB stated that ""[t]he PART rel[ies] on objective datato assess programs."" (34) Former OMB Director Mitchell Daniels Jr. also reportedly stated, with release of the President'sFY2004 budget proposal, that ""[t]his is the first year in which ... a serious attempt has been made toevaluate, impartially on an ideology-free basis, what works and what doesn't."" (35) Other points of viewregarding how the PART was used are discussed later in this report, in the section titled ""Third PartyAssessments of the PART."" In the President's FY2005 budget proposal, OMB stated that PART ratings are intended to""affect"" and ""inform"" budget decisions, but that ""PART ratings do not result in automatic decisionsabout funding."" (36) InOMB's guidance for the FY2004 PART, for example, OMB said: FY 2004 decisions will be fundamentally grounded inprogram performance, but will also continue to be based on a variety of other factors, includingpolicy objectives and priorities of the Administration, and economic and programmatic trends. (37) In addition, OMB's FY2006 PART guidance states that [t]he PART is a diagnostic tool; the main objective ofthe PART review is to improve program performance. The PART assessments help linkperformance to budget decisions and provide a basis for making recommendations to improveresults. (38) The President's budget proposals for FY2004 and FY2005 both indicated that the PART processinfluenced the President's recommendations to Congress. (39) An analysis of the Bush Administration's FY2005 PART assessments by the PerformanceInstitute, a for-profit corporation that has broadly supported the President's Management Agenda,stated that ""PART scores correlated to funding changes demonstrates an undeniable link betweenbudget and performance in FY '05."" (40) The Performance Institute noted that the President made thefollowing budget proposals for FY2005: Programs that OMB judged ""Effective"" were proposed with average increasesof 7.18%; ""Moderately Effective"" programs were proposed with average increases of8.27%; ""Adequate"" programs were proposed with decreases of1.64%; ""Ineffective"" programs were proposed with average decreases of 37.68%;and ""Results Not Demonstrated"" programs were proposed with average decreasesof 3.69%. The Performance Institute further asserted that the PART had captured the attention of federalmanagers, resulted in improved performance management, resulted in better outcome measures forprograms, and served as a ""quality control"" tool for GPRA. (41) The company also assertedthat Congress, which had not yet engaged in the PART process, should do so. The PART. According to a news report, oneprominent scholar in the area of program evaluation offered a mixed assessment of the PART: Some critics call PART a blunt instrument. But HarryR. Hatry, the director of the public-management program at the Urban Institute, a Washington thinktank, said the administration appears to be making a genuine effort to evaluate programs. He serveson an advisory panel for the PART initiative. ""All of this is pretty groundbreaking,"" he said. Mr.Hatry argues that it's important to examine outcomes for programs, and that spending decisionsought to be more closely tied to such information. That said, he did caution about how far PARTcan go. ""The term 'effective' is probably pushing the word a little bit,"" he said. ""It's almostimpossible to extract in many of these programs ... the effect of the federal expenditures."" Ultimately, while Mr. Hatry is enthusiastic about adding information to the budget-making process,he holds no illusions that this will suddenly transform spending decisions in Washington. ""Politicalpurpose,"" he said, ""is all over the place."" (42) Scholars have also begun to analyze the PART using sophisticated statistical techniques,including regression analysis. (43) One team investigated ""the role of merit and politicalconsiderations"" in how PART scores might have influenced the President's budget recommendationsto Congress for FY2004 and FY2005 for individual programs. (44) In summary, they foundthat PART scores were positively correlated with the President's recommendations for budgetincreases and decreases (i.e., a higher PART score was associated with a higher proposed budgetincrease, after controlling for other variables). The team also found what they believed to be someevidence (i.e., statistically significant regression coefficients) that politics may have influenced thebudget recommendations that were made, and how the PART was used, for FY2004, but not forFY2005. They also found what they believed to be evidence that PART scores appeared to haveinfluence for ""small-sized"" programs (less than $75 million) and ""medium-sized"" (between $75 and$500 million) programs, but not for large programs. (45) PART and Performance Budgeting. Observershave generally considered the PART to be a form of ""performance budgeting,"" a term that does nothave a standard definition. (46) In general, however, most definitions of performance budgetinginvolve the use of performance information and program evaluations during a government's budgetprocess. Scholars have generally supported the use of performance information in the budgetprocess, but have also noted a lack of consensus on how the information should be used and thatperformance budgeting has not been a panacea. In state governments, for example: Practitioners frequently acknowledge that the processof developing measures can be useful from a management and decision-making perspective. Budgetofficers were asked to indicate how effective the development and use of performance measures hasbeen in effecting certain changes in their state across a range of items, from resource allocationissues, to programmatic changes, to cultural factors such as changing communication patterns amongkey players.... Many respondents were willing to describe performance measurement as ""somewhateffective,"" but few were more enthusiastic.... Most markedly, few were willing to attach performancemeasures to changes in appropriation levels.... Legislative budget officers ranked the use ofperformance measures especially low in [effecting] cost savings and reducing duplicative services....Slightly more than half the respondents ""strongly agreed"" or ""agreed"" when asked whether theimplementation of performance measures had improved communication between agency personneland the budget office and between agency personnel and legislators. (47) Another scholar asserted that, among other things, ""[p]erformance budgeting is an old idea with adisappointing past and an uncertain future,"" and that ""it is futile to reform budgeting without firstreforming the overall [government] managerial framework."" (48) GAO recently undertook a study of how OMB used the PART for the FY2004 budget. (49) Specifically, GAOexamined: (1) how the PART changed OMB's decision-making process in developing thePresident's FY2004 budget request; (2) the PART's relationship to the [Government Performanceand Results Act] planning process and reporting requirements; and (3) the PART's strengths andweaknesses as an evaluation tool, including how OMB ensured that the PART was appliedconsistently. (50) GAO asserted that the PART helped to ""structure and discipline"" how OMB usedperformance information for program analysis and the executive branch budget developmentprocess, (51) made OMB'suse of performance information more transparent, and ""stimulated agency interest in budget andperformance integration."" (52) However, GAO noted that ""only 18 percent of the [FY2004PART] recommendations had a direct link to funding matters."" (53) GAO also concluded ""themore important role of the PART was not in making resource decisions but in its support forrecommendations to improve program design, assessment, and management."" (54) More fundamentally, GAO contended that the PART is ""not well integrated with GPRA --the current statutory framework for strategic planning and reporting."" Specifically, GAO said: OMB has stated its intention to modify GPRA goals andmeasures with those developed under the PART. As a result, OMB's judgment about appropriategoals and measures is substituted for GPRA judgments based on a community of stakeholderinterests.... Many [agency officials] view PART's program-by-program focus and the substitutionof program measures as detrimental to their GPRA planning and reporting processes. OMB's effortto influence program goals is further evident in recent OMB Circular A-11 guidance that clearlyrequires each agency to submit a performance budget for fiscal year 2005, which will replace theannual GPRA performance plan. (55) Notably, GPRA's framework of strategic planning, performance reporting, and stakeholderconsultation prominently includes consultation with Congress. Furthermore, GAO said: Although PART can stimulate discussion onprogram-specific performance measurement issues, it is not a substitute for GPRA's strategic,longer-term focus on thematic goals, and on department- and governmentwide crosscuttingcomparisons. Although PART and GPRA serve different needs, a strategy for integrating the twocould help strengthen both. (56) GAO performed regression analysis on the Bush Administration's PART scores and fundingrecommendations. (57) In particular, GAO estimated the relationship of overall PART scores on the President'srecommended budget changes for FY2004 (measured by percentage change from FY2003) for twoseparate subsets of the programs that OMB assessed with the PART for FY2004. For mandatory programs, GAO found no statistically significant relationship between PART scores and proposedbudget changes. (58) For discretionary programs as an overall group, GAO found a statistically significant, positiverelationship between PART scores and proposed budget changes. (59) However, when GAO ranseparate regressions on small, medium, and large discretionary programs, GAO found a statisticallysignificant, positive relationship only for small programs. GAO also came to the following determinations: OMB made sustained efforts to ensure consistency in how programs wereassessed for the PART, but OMB staff nevertheless needed to exercise ""interpretation and judgment""and were not fully consistent in interpreting the PART questionnaire (pp. 17-19). Many PART questions contained subjective terms that contributed tosubjective and inconsistent responses to the questionnaire (pp. 20-21). (60) Disagreements between OMB and agencies on appropriate performancemeasures helped lead to the designation of certain programs as ""Results Not Demonstrated"" (p.25). (61) A lack of performance information and program evaluations inhibitedassessments of programs (pp. 23-24). The way that OMB defined program may have been useful for a PARTassessment, but ""did not necessarily match agency organization or planning elements"" andcontributed to the lack of performance information (pp. 29-30). (62) In response to these issues, GAO recommended that OMB take several actions, includingcentrally monitoring agency implementation and progress on PART recommendations and reportingsuch progress in OMB's budget submission to Congress; continuing to improve the PART guidance;clarifying expectations to agencies on how to allocate scarce evaluation resources; attempting togenerate early in the PART process an ongoing, meaningful dialogue with congressionalappropriations, authorization, and oversight committees about what OMB considers the mostimportant performance issues and program areas; and articulating and implementing an integrated,complementary relationship between GPRA and the PART. (63) In OMB's response, OMBDeputy Director for Management Clay Johnson III stated ""We will continually strive to make thePART as credible, objective, and useful as it can be and believe that your recommendations will helpus to that. As you know, OMB is already taking actions to address many of them."" (64) In addition, GAO suggested that while Congress has several opportunities to provide itsperspective on performance issues and performance goals (e.g., when establishing or reauthorizinga program, appropriating funds, or exercising oversight), ""a more systematic approach could allowCongress to better articulate performance goals and outcomes for key programs of major concern""and ""facilitate OMB's understanding of congressional priorities and concerns and, as a result,increase the usefulness of the PART in budget deliberations."" Specifically, GAO suggested that Congress consider the need for a strategy that couldinclude (1) establishing a vehicle for communicating performance goals and measures for keycongressional priorities and concerns; (2) developing a more structured oversight agenda to permita more coordinated congressional perspective on crosscutting programs and policies; and (3) usingsuch an agenda to inform its authorization, oversight, and appropriations processes. (65) Previous sections of this report discussed how the PART is structured, how it has been used,and how various actors have assessed its design and implementation. This section discusses potentialcriteria for evaluating the PART or other program evaluations, which might be considered byCongress during the budget process, in oversight of federal agencies and programs, and regardinglegislation that relates to program evaluation. (66) Should Congress focus on the question of criteria, the programevaluation and social science literature suggests that three standards or criteria may be helpful: theconcepts of validity , reliability , and objectivity . Validity has been defined as ""the extent to which any measuring instrumentmeasures what it is intended to measure."" (67) For example, because the PART is supposed to measure theeffectiveness of federal programs, its validity turns on the extent to which PART scores reflect theactual ""effectiveness"" of those programs. (68) Reliability has been described as ""the relative amount of random inconsistencyor unsystematic fluctuation of individual responses on a measure""; that is, the extent to which severalattempts at measuring something are consistent (e.g., by several human judges or several uses of thesame instrument). (69) Therefore, the degree to which the PART is reliable can be illustrated by the extent to which separateapplications of the instrument to the same program yield the same, or very similar,assessments. Objectivity has been defined as ""whether [an] inquiry is pursued in a way thatmaximizes the chances that the conclusions reached will be true."" (70) Definitions of the wordalso frequently suggest concepts of fairness and absence of bias. The opposite concept is subjectivity , suggesting, in turn, concepts of bias, prejudice, or unfairness. Therefore, making ajudgment about the objectivity of the PART or its implementation ""involves judging a course ofinquiry, or an inquirer, against some rational standard of how an inquiry ought to have been pursuedin order to maximize the chances of producing true findings "" (emphasis in original). (71) Although these three criteria can each be considered individually, in application they may prove tobe highly interrelated. For example, a measurement tool that is subjectively applied may yield resultsthat, if repeated, are not consistent or do not seem reliable. Conversely, a lack of reliable results maysuggest that the instrument being used may not be valid, or that it is not being applied in an objectivemanner. In these situations, further analysis is typically necessary to determine whether problemsexist and what their nature may be. With regard to the PART, the Administration has made numerous assessments regardingprogram effectiveness. But how should one validly , reliably , and objectively determine a programis effective ? Should Congress wish to explore these issues regarding the PART or other evaluations,Congress might assess the extent to which the assessments have been, or will be, completed validly,reliably, and objectively. Different observers will likely have different views about the validity, reliability, andobjectivity of OMB's PART instrument, usage, and determinations. Nonetheless, some previousassessments of the PART suggest areas of particular concern. For example, in its study of the PART,GAO reported that one of the two reasons why programs were designated by the Administration as""results not demonstrated"" (nearly 50% of the 234 programs assessed for FY2004) was that OMBand agencies disagreed on how to assess agency program performance, as represented by ""long-termand annual performance measures."" (72) Different officials in the executive branch appeared to havedifferent conceptions of what the appropriate goals of programs, and measures to assess programs,should be -- raising questions about the validity of the instrument. It is reasonable to conclude thatactors outside the executive branch, including Members of Congress, citizens, and interest groups,may have different perspectives and judgments on appropriate program goals and measures. UnderGPRA, stakeholder views such as these are required to be solicited by statute. Under the PART,however, the role and process for stakeholder participation appears less certain. Other issues that GAO identified could be interpreted as relating to the PART instrument's validity in assessing program effectiveness (e.g., OMB definitions of specific programs inconsistentwith agency organization and planning); its reliability in making consistent assessments anddeterminations (e.g., inconsistent application of the instrument across multiple programs); and its objectivity in design and usage. To illustrate with some potential examples of objectivity issues,subjectivity could arguably be resident in a number of PART questions, including, among others,when OMB conducted its assessment for FY2005: (73) whether a program is ""excessively"" or ""unnecessarily"" ... ""redundant orduplicative of any other Federal, State, local, or private effort"" [question 1.3, p. 22]; (74) whether a program's design is free of ""major flaws"" [question 1.4, p. 23]; (75) whether a program's performance measures ""meaningfully"" reflect theprogram's purpose [question 2.1, p. 25]; (76) and whether a program has demonstrated ""adequate"" progress in achievinglong-term performance goals [question 4.1, p. 47]. Use of such terms that, in the absence of clear definitions, are subject to a variety of interpretationscan raise questions about the objectivity of the instrument and its ratings. In one of its earliest publications on the PART, OMB said that ""[w]hile subjectivity can beminimized, it can never be completely eliminated regardless of the method or tool. (77) OMB went on to say,though, that the PART ""makes public and transparent the questions OMB asks in advance of makingjudgments, and opens up any subjectivity in that process for discussion and debate."" That said, thePART and its implementation to date nevertheless appear to place much of the process for debatingand determining program goals and measures squarely within the executive branch. ","Federal government agencies and programs work to accomplish widely varying missions. These agencies and programs employ a number of public policy approaches, including federalspending, tax laws, tax expenditures, and regulation. Given the scope and complexity of theseefforts, it is understandable that citizens, their elected representatives, civil servants, and the publicat large would have an interest in the performance and results of government agencies and programs. Evaluating the performance of government agencies and programs has proven difficult andoften controversial. In spite of these challenges, in the last 50 years both Congress and the Presidenthave undertaken numerous efforts -- sometimes referred to as performance management,performance budgeting, strategic planning, or program evaluation -- to analyze and manage thefederal government's performance. Many of those initiatives attempted in varying ways to useperformance information to influence budget and management decisions for agencies and programs. The George W. Bush Administration's release of the Program Assessment Rating Tool (PART) isthe latest of these efforts. The PART is a set of questionnaires that the Bush Administration developed to assess theeffectiveness of different types of federal executive branch programs, in order to influence fundingand management decisions. A component of the President's Management Agenda (PMA), the PARTfocuses on four aspects of a program: purpose and design; strategic planning; program management;and program results/accountability. The Administration submitted PART ratings for programs alongwith the President's FY2004 and FY2005 budget proposals, and plans to continue doing so forFY2006 and subsequent years. This report discusses how the PART is structured, how it has been used, and how variouscommentators have assessed its design and implementation. The report concludes with a discussionof potential criteria for assessing the PART or other program evaluations, which Congress mightconsider during the budget process, in oversight of federal agencies and programs, and inconsideration of legislation that relates to the PART or program evaluation generally. Proponents have seen the PART as a necessary enhancement to the Government Performanceand Results Act (GPRA), a law that the Administration views as not having met its objectives, inorder to hold agencies accountable for performance and to integrate budgeting with performance. However, critics have seen the PART as overly political and a tool to shift power from Congress tothe President, as well as failing to provide for adequate stakeholder consultation and publicparticipation. Some observers have commented that the PART has provided a needed stimulus toagency program evaluation efforts, but they do not agree on whether the PART validly assessesprogram effectiveness. This report will be updated as events warrant."
"Advances in telecommunications technology have the potential to provide new and improved services to people no matter where they live. For example, students in rural areas of Iowa are being taught Russian, music, and calculus by teachers in distant urban centers through two-way video communications. North Carolina has begun to link rural and urban hospitals to provide rural sites with access to medical specialists via video. A telephone company in Nebraska has created jobs in a small rural town by establishing a nationwide telemarketing business. Modern telecommunications can thus be used both to improve the delivery of services and to promote economic development. In figure 1.1, a technician at a hospital in Des Moines is transmitting an echocardiogram to be read by a specialist at the University of Iowa hospitals in Iowa City, Iowa—100 miles away. Using advanced telecommunications instead of sending a tape by a 2-hour courier trip results in a quicker diagnosis and more timely treatment for the patient. While services such as two-way video are offered in some places in the United States today, they are not widely available because the current telecommunications infrastructure, notably the telephone system, was not designed to provide them. Billions of dollars worth of infrastructure improvements would be needed in order to quickly transmit data and high-quality video images throughout the nation. Some state governments are currently looking for ways to accelerate this investment and ensure that services will be affordable and widely available to their residents. The experiences of the states that have begun this process can provide critical information to federal policymakers and to other states as they revise their telecommunications policies and seek to develop a modern telecommunications infrastructure. Historically, private investors have financed the building of the United States’ telephone system, the most widely available form of telecommunications infrastructure. This system now provides services to over 93 million American households. As of 1994, about 94 percent of American households had access to basic telephone services. Telephone companies are already improving their infrastructure to be able to provide advanced telecommunications services. This investment is occurring mainly in business districts and more densely populated residential areas. Profit incentives are not high for companies to provide such service in rural areas, where there are fewer businesses and the cost of delivering services is usually higher, unless financial support is available or cost averaging is applied. It is likely that private investment in advanced telecommunications will be slower in rural areas as well. Recent studies by the Department of Commerce and Office of Technology Assessment found that the use of telecommunications can be particularly beneficial to rural areas, where the population density is low. However, the distances between people in rural areas also increase the cost of providing these services. Some industry observers expect increased competition to lead to lower prices and more choices in telephone service. Others point out, however, that competition is less likely to develop in rural areas and that customers in these areas may be faced with higher prices because without subsidies or cost averaging, the prices for telecommunications services will likely reflect the higher cost of providing service there. Advanced telecommunications services can be provided, in part, by upgrading the current telephone system’s infrastructure to increase the capacity, or “bandwidth” of the telephone lines and switches. These upgrades include powerful new computer switches, complex software, and fiber optic cables that combine to form a high capacity, “broadband” telecommunications infrastructure. The technologies that can be used for upgrades are diverse. For instance, replacing existing copper telephone lines with new fiber optic lines can dramatically increase capacity, enabling the lines to carry many thousands of times more data. In addition to telephone lines, other kinds of technologies—including satellites, cellular telephones, and cable television systems—can transmit information as part of the telecommunications infrastructure. Besides the infrastructure needed to move information over distances, advanced telecommunications depend on two other elements—on-site equipment and switches that have been upgraded to handle larger amounts of information. Figure 1.2 illustrates these components of a network. The equipment at the originating site turns the information generated by the user, such as sounds, words, and pictures, into a form that can be transmitted. The switches route the transmission to its destination through cables or some other transmission channel. Once the transmission arrives at its destination, other types of on-site equipment convert the transmission back into the same usable form of sounds, words, or pictures. The President recently signed legislation reforming federal telecommunications law. This new law envisions a telecommunications industry in which a variety of companies—local telephone, long-distance, cable television, and wireless—can offer similar services and compete with one another. For example, the new law allows competition for local telephone services. While promoting deregulation, this law seeks to preserve and advance the concept of “universal service”—affordable and widely available telephone service. Universal service has been a federal goal since the enactment of the Communications Act of 1934, and federal and state governments have supported this goal through a series of subsidies and other types of assistance. The effect of this policy has been to make telephone service more affordable for residential customers and rural users. The new law provides for the establishment of a joint federal-state board to make recommendations to the Federal Communications Commission on the steps necessary to preserve and advance the goal of universal service. At the state level, officials have discussed the value of advanced telecommunications services in national forums such as the National Governors’ Association and the National Conference of State Legislators. They envision using advanced telecommunications to provide education, health care, and other public services more effectively and more equitably (see fig. 1.3). They also believe these services will make their states more attractive to new and expanding businesses and allow their rural residents to participate more fully in state government. As a result, leaders in state governments are looking for ways to accelerate the development of the telecommunications infrastructure. Three states with significant rural populations—Iowa, Nebraska and North Carolina—have been cited as leaders in the development of statewide advanced telecommunications services. Recognizing that decisions about private investment for improving the telecommunications infrastructure are driven by market circumstances, officials in these states have worked with the private sector and with potential users to encourage private investment and ensure the availability of service in less densely populated rural areas. Table 1.1 shows the demographics of these three states relative to the nation as a whole. Iowa is a midsized agricultural state with a population of about 2.8 million. The state has a large number of midsized towns—ranging from 8,000 to 10,000 people—which are fairly equally distributed in the eastern two-thirds of the state. The state also has about 100,000 farms. Of Iowa’s 99 counties, 88 are considered rural. Iowa’s primary goals for a statewide telecommunications network were improving educational services and equalizing educational resources, such as the course offerings available at urban and rural educational facilities. Iowa selected a system based on high-capacity fiber optic technology and SONET software that was capable of transmitting voice, data, and two-way interactive video. This technology provides high-quality pictures that let students and teachers see each other clearly. Nebraska is a predominantly agricultural state with a scattered population. Sixty percent of the state’s 1.6 million residents are located in four major cities; the rest live in small and midsized communities that are often distant from each other. The western parts of the state are sparsely populated. Of the state’s 93 counties, 88 are considered rural, and 10 of the 25 counties with the smallest populations in the nation are located in Nebraska. Nebraska’s first priority for its network was providing high-speed data services, such as Internet connections, at prices that the state’s small, rural schools and organizations could afford. The frame-relay technology that the state selected, streamlines data transmissions and allows data to travel more quickly and cost-effectively than other alternatives. The state has also created a video network that community organizations can use for meetings, hearings, and training sessions, using leased T-1 lines. The “compressed” video technology selected for the network reduces the bandwidth needed to send pictures and the cost of transmission. However, the resulting video images are often seen as jerky or blurred. About half of North Carolina’s 7 million residents live in midsized towns found along a central corridor stretching east from the state’s largest city, Charlotte, to the Atlantic coastline. This area includes the generally affluent Raleigh-Durham metropolitan area and Research Triangle Park, one of the nation’s leading centers for medical, electronic, and industrial research. The western part of the state is mountainous and forested, and many of the state’s least populated counties are found in this area. The coastal region also includes isolated towns. Of North Carolina’s 100 counties, 75 are considered rural. The primary objectives for North Carolina’s network were improving education and making North Carolina’s businesses more competitive. The state selected state-of-the-art technology: a high-capacity fiber optic network and advanced ATM switches that can connect a very large number of users and support very fast interactive video transmission to multiple users simultaneously. The costs of this advanced system were considered acceptable because state and private-sector officials believed that it would have a longer useful life than a system built with older technologies. The Chairman and Ranking Minority Member of the Senate Committee on Agriculture, Nutrition, and Forestry asked us to provide information on selected states that have started developing their telecommunications infrastructure, specifically (1) how these states encouraged private investment in improving their telecommunications infrastructure, (2) how they provided for increased and affordable access to advanced telecommunications services, and (3) what lessons their experiences could provide for others. To respond to this request, we conducted case studies of three states—Iowa, Nebraska, and North Carolina—that (1) include rural populations that constitute at least one-third of the state’s total population and (2) have made significant progress in deploying statewide advanced telecommunications systems. To answer the first two objectives, we used a case-study approach that included interviews with state and private-sector officials and reviews of state planning documents, audit reports, and network operation figures, as well as pertinent economic and demographic data for the states and the nation. To answer the second objective, we also examined the extent to which high schools in rural and urban areas have access to the states’ networks. We chose high schools because providing service to them was a goal in all three states. We relied on USDA for a determination of urban and rural counties and on the states’ data for a listing of connected and unconnected schools. To answer the third objective, we asked project participants in the three states what factors had helped or hindered their efforts; we combined this information with our observations and analysis to identify the lessons. We performed our work from June 1995 through February 1996 in accordance with generally accepted government auditing standards. We discussed a draft of this report with senior officials with responsibility for the networks in the three states we visited, as well as with NTIA officials. These officials generally agreed with the information presented and provided some information to clarify and update the report. A detailed discussion of their comments and our responses is included at the end of chapter 4. While all three states wanted to use advanced telecommunications to make services more accessible to their residents, each also wanted to avoid, if possible, the large-scale public expenditures that could be required to build the needed infrastructure. As a result, all three states encouraged the telephone companies operating in their states to invest in upgrading the existing networks more quickly so that the companies could make advanced telecommunications services available within the states’ time frames. Each of the states tried to encourage private investment through the use of long-term agreements whereby the state would purchase advanced telecommunications services from the telephone companies. At the time Iowa tried this strategy, uncertainties about the profitability of providing advanced services discouraged the telephone companies from accepting the risks of investing in the statewide network needed to provide these services. However, by the time Nebraska and North Carolina began their projects, the telephone companies had already begun to upgrade their facilities, by, for example, using more fiber optic lines. Also, having the states as long-term customers provided an income stream and reduced the risk of investment. Finally, by investing in their own infrastructure, companies could avoid competing with a state-owned facility. In 1987, Iowa began efforts to become the first state to create a fiber optic telecommunications network that would deliver services to classrooms throughout the state. The Iowa Public Broadcasting Board was directed to develop a design for a video network, and a formal request for private-sector proposals to construct the network was issued in 1988. According to state officials, the request had several technical flaws in it, and telephone company representatives were uncertain whether they would be able to recover the costs of building the system. Despite these uncertainties, the state received three bids to build the network. After reviewing these, the state announced its intent to award the contract to one of the companies. However, a challenge was filed and the intended award was overturned in March 1989. State officials ascribe the state telephone companies’ lack of interest in the project to several factors. These include doubts about the profitability of the network, a belief that it would be too expensive, and hesitancy to make investments in a long-term project that might not allow them to recover their investment in an acceptable time frame. These officials also told us that they believe that the state’s telephone companies were not prepared to make the internal policy decisions needed to make long-term lease agreements or ready to make infrastructure improvements as quickly as the state required. One telephone company cited as an inhibiting factor the cost and complications of assembling proposals for such an uncertain outcome. Another saw the level of investment, lack of a known customer base, and high technology required as substantial risks. In May of 1989, the state legislature passed a law providing the initial funding to build the Iowa Communications Network. This state-owned, statewide network was to be designed to provide video, voice, and data service to the state government and educational system. The proposal was not debated by the full legislature and was adopted on the last day of the legislative session. The staff responsible for the design of the network later told Iowa’s state auditor that they were not involved in the drafting of the provision until the final days of the legislative session and did not have sufficient time to analyze the proposed network or its costs. According to state officials, telephone company representatives were also excluded from this process. In December 1989, the state asked for proposals to build the network. Two companies bid on the project, but both bids were rejected as too costly, and the proposal was withdrawn. In October 1990, Iowa issued a third, more limited proposal intended to reduce the cost of building the network by, for example, including fewer sites. This proposal did not provide for the equipment or modifications necessary to fully carry the state government’s voice and data service. A contract to begin construction was awarded in April 1991, and $96 million in bonds were issued to finance the system. However, it was later determined that the state government’s telephone service needed to be included in order to generate sufficient cash flow for operations. To fund the resulting design modifications, the state was forced to issue a second set of bonds in 1993 for $18.5 million. Despite these difficulties, Iowa has now completed parts I and II of its network. The first part entailed installing a network control center at an armory in central Iowa and linking it to the state’s 15 community colleges, 3 state universities, and more than 25 private colleges; Iowa Public Television; and the state capital complex. The second part involved extending the network so that it was available in each of the state’s 99 counties. These two parts were completed by late in 1993. State officials estimated that Iowa had spent more than $100 million to build the network as of the end of 1993. Figure 2.1 shows the network Iowa built during these first two parts. Iowa began Part III of its network in early 1995. In this final part, Iowa will connect an additional 474 sites by 1999, including more than 350 schools and 87 libraries, at an estimated additional cost of about $95 million. Under Part III, Iowa is required by statute to lease fiber optic cable facilities from qualified private telecommunications providers. Thus, to connect the remaining sites, the state is contracting with private companies to provide the local connections. The state will pay the construction cost of installing the fiber circuit, then lease the circuit from the private provider for 7 years. State officials expect this arrangement to be especially beneficial to the smaller telephone companies. This arrangement also reduces the initial amount of capital that private companies need to participate in network development. Because of some legislators’ concerns about whether the state should own and operate a network, the legislature requested a study to examine alternatives, which ranged from retaining state ownership of the network to selling the network. On the basis of the study, the Iowa Telecommunications and Technology Commission, which manages the network, unanimously recommended retaining state ownership because it was the most practical option at the time. The legislature accepted this recommendation and, according to state officials, the legislature will restudy this issue in the year 2000. By the early 1990s, when Nebraska and North Carolina were beginning to seek private-sector assistance in providing advanced telecommunications services, the telephone companies were more receptive to cooperative arrangements because of changes that had occurred since Iowa began its project. According to private-sector officials we spoke with in both Nebraska and North Carolina, the telephone companies had already begun efforts to upgrade their facilities and were more willing to finance network development. To provide the services the states wanted, the companies had to, for example, replace copper wires with fiber optic lines and upgrade their switches. According to telephone company representatives in both Nebraska and North Carolina, the companies were already planning to make some of these improvements. For example, telephone company officials we spoke with said that their companies were increasing the use of fiber optic cable in their systems because it is more cost-effective and reliable than copper lines. Officials also told us that they had already begun to test and offer some advanced services, such as fast data service and video communications for education, in limited areas. Iowa’s experience also served as a motivating factor. By demonstrating that a state could build its own network, Iowa reduced some of the earlier uncertainties about cost and demand. However, according to telephone company officials in Nebraska and North Carolina, the telephone companies did not want the states to build networks that could compete with them for business, as Iowa had done. Participants in North Carolina identified prior experience with advanced telecommunications pilot projects involving public- and private-sector participants as a factor that helped convince companies to work with the state on its advanced network. There, the telephone companies had conducted several projects testing advanced telecommunications applications for schools and hospitals. These tests helped convince the companies that it was technically feasible to offer advanced telecommunications services on a larger scale. Participants also identified the positive working relationship developed during an upgrade of the state’s telephone system as a factor that built trust between the companies and the state government. According to participants in Nebraska, the reduction of state regulations on telephone service prompted the telephone companies to experiment by offering new services. The companies were more willing to offer such services in Nebraska, officials said, in order to demonstrate the benefits of deregulation to other states. In this environment, the long-term leases that Nebraska and North Carolina offered—called an “anchor-tenant” arrangement—helped convince the telephone companies that responding to their states’ proposals was in their best business interests. For example, as a result of a meeting with several state telephone companies, Nebraska’s Division of Communications has entered into 5-year agreements to buy frame-relay services at wholesale prices. At the same time, costs are reduced for the telephone companies because the state is performing functions, such as billing, that the company performs for other customers. North Carolina used a similar anchor-tenant arrangement to attract private investment. After deciding it wanted to make advanced telecommunications services available statewide, the State Controller’s Office asked the local telephone companies to help develop the technical specifications required for this network. It then struck formal agreements with three major local telephone companies and a long-distance company to build the infrastructure needed for its applications. In return, the state agreed to pay rates based on estimates of a certain level of use, which were derived from the original projections of the number of sites to be connected and their levels of connection time. These rates are reviewed every 2 years and can be adjusted to reflect the actual usage if the state and the companies agree. By basing their rates on projected usage and allowing for changes based on actual usage, the telephone companies could plan to recover their costs in a time period they thought was reasonable. According to participants in the projects in Nebraska and North Carolina, these long-term agreements between the states and the telephone companies benefited the companies in the following ways: Investment risk was reduced by ensuring a stream of revenues to help recover the costs of installing the hardware. The infrastructure that was upgraded is owned by the companies, and any capacity not committed to the state could be sold to other customers. (In North Carolina, officials estimate that 75 percent of the capacity of the upgraded network will be available for lease to private customers.) The presence of an advanced telecommunications infrastructure can serve as an economic development tool to help states attract new business and retain existing jobs—which means the companies will have more customers to sell their services to in the future. Although the telephone companies had begun to make some improvements to their systems, company representatives agreed that the states’ efforts encouraged them to make improvements faster than they would have on their own, especially in rural areas. Representatives of one of the Nebraska companies we interviewed estimated that they had invested $7.5 million in the state system by October 1995. The company expects its investment to rise to $14 million in the near term. Officials with the three telephone companies we spoke with in North Carolina estimated that they had invested about $43 million through August 1995 to upgrade their facilities. Two of the three North Carolina companies could not, however, estimate how much investment was due solely to the state’s efforts. The three states we visited agreed that making advanced telecommunications services available to public organizations was more practical than providing services to individual homes. They made services more affordable for users by providing funding for some local equipment and establishing lower prices for users than these users could obtain on their own. These policies were designed in part to address the concerns of rural residents, who could face higher prices because of the distances between rural communities and the smaller number of people living in them. While all three states have made progress in providing advanced telecommunications services to communities, they are still in the early stages of deploying their networks and plan to connect many more sites over the next several years. A review of the number of rural high schools connected in each state indicates that many are still waiting for connections. Although all of the states wanted to accelerate the pace at which services could be made widely available, they considered delivering advanced services to homes unfeasible and unnecessary. Instead, the three states decided to provide for increased and affordable advanced telecommunication services by locating access points in public buildings—such as schools, libraries, and hospitals—where the equipment could be used by many people. Each state has begun connecting sites at these locations. Table 3.1 illustrates the type and number of organizations that have been connected to the states’ networks. Figure 3.1 shows some ways in which advanced telecommunications are being used in each state. All of the states are giving special priority to improving education, and more than 500 schools in these states now have access to instructional resources located beyond their classrooms and buildings. All three states see the use of technology as a way to equalize educational opportunities between rural and urban areas. North Carolina, like several other states, is being sued over alleged inequities in the amount of funding available to school districts in different parts of the state. The state hopes that use of the network will help alleviate these concerns and that, once connected, smaller, poorer schools will have access to specialized educational service regardless of their resource base. All the states expect other types of users to benefit from access to the network. Iowa provides services to federal agencies, such as the U.S. Postal Service and Department of Veterans Affairs. Nebraska’s video network is open to community groups such as churches and chambers of commerce. Iowa and North Carolina are using their systems to conduct judicial hearings from remote locations. In addition, Iowa and Nebraska expect to use the availability of modern telecommunications as an economic development tool. Similarly, North Carolina hopes that making advanced services available to businesses will help the state attract and retain companies. In each of the states we studied, network users were expected to purchase and install the equipment needed to use the state networks. For example, in schools this equipment includes users’ equipment—cameras, monitors, and computers—and the network connection equipment that converts information, sounds, and pictures into a form that can be transmitted. In Iowa, local users are expected to pay for classroom equipment, but the state pays for network connection equipment for state and educational users, while federal government and medical users pay for their own connection equipment. North Carolina expects its sites to meet both costs. Nebraska expects sites to purchase the equipment needed to connect to the frame-relay system, but the state purchased the equipment for the video conferencing sites. In all three states, the sites use funds from a variety of sources to pay these costs, including capital budgets, grants, and private donations. Table 3.2 shows examples of the connection expenses that schools in each state must meet. Nebraska’s video costs are lower than Iowa’s and North Carolina’s, reflecting the state’s decision to use less-expensive technology. North Carolina’s State Controller believes that the communities’ expenses will decline as the state’s network technology matures and becomes more generally available. All three states found that some local sites needed assistance in paying for on-site equipment and offered such assistance using a variety of techniques. Iowa is using appropriated funds to help schools pay for local connection equipment. Nebraska has funded some educational connections through several sources. For example, it has created a School Technology Fund from funds available from a planned program to winterize the schools and proceeds from the state lottery. Grants from this fund will be used to help schools with small budgets pay to prepare rooms and connect with the frame-relay network. Also, the state’s Public Service Commission allowed telephone companies to use a tax windfall to help schools connect to the Internet instead of returning these funds directly to consumers. The North Carolina legislature created grants that can help local sites meet the cost of preparing rooms and connecting equipment. Of the first 132 sites planned to be connected in North Carolina, 115 received some form of state funding. States and communities have also used funds from federal programs to pay for users’ equipment and network connection equipment. For example, the Iowa National Guard used funds from the Department of Defense’s Advanced Research Projects Agency (ARPA) to link its 60 armories. North Carolina’s sites have also received grants from federal agencies, including ARPA, NTIA, and USDA. Table 3.3 lists examples of the use of federal assistance by states and localities for network development. According to an Iowa education official, federal funds have been key to Iowa’s ability to connect schools in a wide range of communities. A North Carolina official indicated that federal funds used for earlier state projects, such as a medical project partially funded by the National Science Foundation, contributed to their ability to plan and implement a statewide network. Two states—Iowa and North Carolina—are making the services more affordable by charging the same price for using the network at every location, even at remote locations that are more expensive to serve. According to the North Carolina Governor’s Office, North Carolina is committed to ensuring that those who need service most, including residents in remote rural areas, will not have to pay more for services than those in other regions. Iowa shares this commitment, stating that there will be no regional price penalties. As a result, residents in rural counties in Iowa and North Carolina can obtain services at the same rate as users in urban counties like those where Dubuque and Raleigh are located. Nebraska has not averaged rates for all of its users but has averaged costs for state agency users. The prices that local organizations pay for network services vary by state. Users in Nebraska pay lower fees than users in the other two states because Nebraska’s technology is less advanced. All of the states charge users by the hour to use their systems, but North Carolina also charges a fixed monthly fee. Table 3.4 illustrates the networks’ rates for services and how they are applied. In North Carolina, the state government is the telecommunication industry’s largest customer, and the state has used this position to purchase network services on behalf of other eligible network users. This strategy makes network use more affordable for local sites, allowing them to purchase network time at prices 25-30 percent lower than those available on the open market. The Nebraska state government is also purchasing large amounts of capacity and reselling it to regional educational facilities at prices that state officials said were lower than the facilities could negotiate by themselves. As a large customer, the state has also obtained discounts of approximately 50 percent from telephone companies for schools that are using the network. All three states have also used direct subsidies to make the services more affordable. Iowa currently subsidizes school sites, paying $35 of the $40 an hour that schools are charged for using the network. A raise in this rate resulted in a dramatic decrease in video usage, and the $5 rate was reinstated after school officials indicated that they were unwilling or unable to pay more. In order to encourage participation in the frame-relay network, Nebraska paid the usage charges for all of the regional educational facilities connected to this system during the first year of the network’s operation. In North Carolina, the legislature originally allowed state funds to be used for either site equipment or network costs. For the current fiscal year, the legislature approved funds averaging $2,800 per month for each site to subsidize network costs for those sites already connected to the network. Although the three states are still in the early stages of developing their networks, each has made progress in making advanced telecommunications services widely available to its citizens through organizations such as schools, hospitals, and government agencies. Iowa has completed two of the three parts of its project. As of October 31, 1995, it had connected 157 sites, and it plans to connect 474 more sites by 2000. Nebraska had connected over 400 schools (kindergarten through 12th grade) as of February 1996 and is working with a number of communities to help them develop demand for new applications. North Carolina has connected over 100 sites of the 800 sites the Governor’s Office estimated that the state would connect by the end of 1999. However, in 1995 the legislature prohibited the use of state funds to connect additional sites without further legislative approval. Despite this progress, much remains to be done to make affordable advanced telecommunications services widely available. For example, despite each state’s emphasis on improving and equalizing education, none of the three states had succeeded in connecting half of its high schools by November 1995. Nebraska had made the most progress, connecting 140 of its 300 high schools. More of the states’ unconnected schools are located in rural counties, where students may be distant from urban centers.These counties also contain more of the states’ high schools (see fig. 3.2). In Iowa and Nebraska, the connected high schools are spread fairly evenly throughout the states. In North Carolina, however, a larger number of counties do not have even one high school with access to its advanced telecommunications network. Figures 3.3, 3.4, and 3.5 show the geographic distribution of the connected high schools in each state by county. For all three states, maps showing the connected high schools relative to the total number of high schools in each county are presented in appendix I. The three states we studied recognized that planning and building an effective statewide advanced telecommunications network is an expensive undertaking that can require years to complete. Their experiences illustrate the importance of building and maintaining consensus among those parties that will be involved in constructing, financing, and using the network—the telecommunications companies, anticipated users, state legislators, and state executive branch officials. Addressing the concerns of these parties can help prevent the construction delays and increased costs that result from disagreements and financial constraints. These lessons can be used by other state policymakers as they begin or expand their own advanced telecommunications projects, as well as by federal policymakers who are considering what role the federal government should play in developing a national information infrastructure. Securing the involvement of the telecommunications companies, whose existing telephone and cable television systems can form the basis of an advanced telecommunications network, is a key step, participants told us. Without cooperation from these companies, a state can build its own network, as Iowa did, but it will incur substantial construction and maintenance costs. Company representatives stressed that a company will only invest in upgrading its infrastructure if it expects to recover its investment in a reasonable amount of time. Such investment did not occur in Iowa, where, according to state and private-sector officials, the companies viewed the project as risky and had doubts about the profitability of building the network. Several factors contributed to this assessment, including the perceived technological risk and uncertainty about whether other customers would pay for such services. Conversely, Nebraska and North Carolina were able to encourage private investment because they worked with the companies to ensure that their proposals made “business sense.” Both states involved the companies in decisions about the network’s design so they would know how much investment was needed to provide the anticipated services. In Nebraska, this process resulted in adopting a system using well-known technology, thus reducing both the initial investment and ongoing usage costs. In North Carolina, the companies agreed to provide the state with a system based on state-of-the-art technology that was more expensive to install and use but could have a longer useful life. In both cases, the states and the companies agreed on a system that they believed was technically feasible as well as cost-effective. Both also entered into long-term agreements with customers (namely, the state) to guarantee a stream of revenue that the companies could use to repay their initial investments and thereby reduce their risks. Also, by working with the state, the companies could prevent the introduction of a potential competitor by heading off the construction of a state-owned network like the one built by Iowa. Finally, the companies recognized that they could benefit from the networks by selling advanced services to private customers and by using the network to attract new customers and retain existing ones. Involving the potential users, including local educators and medical professionals, state agencies, and businesses and trade organizations such as chambers of commerce, is also important to ensure general agreement about what services the network should provide. If the system does not meet the needs of the anticipated users, deployment can be slowed, thereby increasing costs for those who are using the system. For example, while North Carolina involved potential users during the planning for its network, the project has experienced slower-than-anticipated acceptance by some users because of the high cost of using the system. One reason for this lower acceptance is that the system was designed to carry two-way video to multiple sites. However, some of the schools that the state anticipated would use the network wanted to buy only access to the Internet at higher speeds than were available over conventional telephone lines, which is a less expensive service to provide. As a result, some users were unwilling to pay for the capacity to send and receive video images, when they would rather have had less expensive data connections. Since the rates the state pays the telephone companies were based on estimates of use that have not been met, these rates, and ultimately the rates charged to users, could go up to allow the telephone companies to recover their investment, further discouraging use of the statewide network. In Iowa, the development of the network was delayed by a disagreement over what services to offer. While the network was always intended to provide video communications for the state’s schools, disagreement arose about whether it should carry telephone calls. Iowa’s state auditor found that this lack of agreement caused several design changes, which slowed the progress of the network. As discussed in chapter 3, paying for equipment to connect to the network and paying the ongoing usage charges can represent a substantial investment by local users. The states expected local users to pay the costs associated with connecting to and using their networks. However, each state currently offers some type of financial assistance to help pay some of these costs. Only one of three states, though, has approved enough funding to connect all the users it planned for. In Nebraska, the state plans to connect all elementary and high schools to the Internet by 2000. The state legislature has approved $13 million for this purpose from a fund originally created to winterize the schools. According to a state education official, this amount should be sufficient to pay for connecting all of the state’s schools to the Internet. Iowa enacted a plan to connect 474 sites to its network by 2000 but initially appropriated funds to pay for about 100 sites through fiscal year 1996. North Carolina has also approved state funds to assist users through 1996 but has not approved funds to assist current users in future years or to connect additional users. If the states do not commit additional funding, there is no guarantee that the sites that want to participate later will get the same assistance that the current sites are getting. As a result, some local sites may be less likely to connect to the networks if they have to pay more of the costs themselves. Some local organizations have also used grants from federal agencies to help pay for connection equipment. However, under recent proposals, some of the programs that provided these funds may be eliminated. For example, there are proposals pending in the Congress to eliminate funds for the Department of Education’s Star Schools program, which helped pay for classroom equipment in Iowa. In addition, NTIA’s information infrastructure grant program, which serves mainly rural and disadvantaged urban areas and provided grants in Nebraska and North Carolina, has been proposed for elimination. Should these proposals be carried out, local users would have fewer funding sources available to help pay the costs associated with using the advanced communications technology. Each of the states planned to complete its advanced telecommunications project over a number of years. In Iowa and North Carolina, where state funding was planned as a major source of resources for the project, it was necessary to request funding approval from the state legislature several times. Since both projects based their plans on future appropriations, they experienced delays when they did not receive the level of funds they anticipated. In Iowa, the legislature originally approved about $50 million over 5 years to construct that state’s network. However, a series of reductions and redirections reduced that amount by over 50 percent to $23 million. In a report, the state auditor found that these shortfalls could impede the progress of the project. North Carolina’s legislature approved $4.1 million for the project as requested in fiscal year 1993. In fiscal year 1994, the governor requested an additional $5.3 million for the project, but the legislature rescinded the original appropriation and approved $7 million. A report by the state auditor concluded that this uncertainty about funding left potential users in a quandary in trying to plan for participation in the network. More recently the legislature appropriated $2.5 million for use through June 1996—again less than requested by the governor. In addition to providing less funding than requested, the legislature explicitly prohibited the use of state funds to connect additional sites to the network without further legislative approval. As a result, North Carolina has been able to connect far fewer sites than it had planned. Although Nebraska also planned a multiyear project, it did not rely on appropriated state funds. Instead, it was able to identify funding for its project from other sources, such as lottery proceeds and a one-time tax refund to telephone companies. Each of the projects in the states we visited spanned a number of years—longer than the individual terms of office of any of the elected officials in those states. According to those we spoke with, having someone who could serve as an advocate for the program despite changes in political leadership was helpful to maintaining the government’s support for the project. For example, in Nebraska, the director of the Division of Communications, has worked on the project from its inception, through the governor’s two terms of office. Despite changes in legislative support, North Carolina’s project kept progressing, in part because of the efforts of the governor’s technology advisor, who had been involved in the design of the project since its inception. In Iowa, the governor has been in a position to advocate the state’s program for nearly 10 years as a result of being reelected to several consecutive terms in office. While an advocate can provide the vision that keeps the project on track, a lack of consistent and coordinated management can limit the effectiveness of the project. According to a report by Iowa’s state auditor, the lack of a consistent management structure was one of the problems that hindered the implementation of the state’s project. Responsibility for the project was initially split between the public television agency and the Division of General Services, which had three different administrators during the first 3 years of the project. It was not until 1994—3 years after network construction began—that the legislature enacted a formal management structure, the Iowa Telecommunications and Technology Commission, to oversee the network’s operations. Similarly, in North Carolina a 1992 performance audit report found that the state needed to restructure its governance of information technology and that it had not performed adequate planning for information technology. In response, the state formed the Information Resources Management Commission, which is responsible for setting state policy on information technology projects, including the statewide network. However, a 1995 report by the state auditor found that while progress had been made, the number of agencies and other organizations involved with the network raised the potential for problems due to a lack of coordination. The report recommended that the state’s technology-related functions be further consolidated. The state controller, who provides the staff for the commission, did not concur with this recommendation on the grounds that the commission was formed to perform this function and that it was too early to evaluate its effectiveness. We discussed a draft of this report with senior officials in the three states we visited, including the Chief Operating Officer, Iowa Communications Network, and the Education Policy Advisor, Office of the Governor of Iowa; the Director, Division of Communications, State of Nebraska; and the Advisor to the Governor for Policy, Budget, and Technology and the State Controller in North Carolina. Each provided comments to clarify and update the draft, and we incorporated them where appropriate. The Iowa officials commented that we had not included enough detail about the technical capabilities of their network or the applications it supported. Because our report is intended for a non-technical audience, we did not include the technical language they proposed. We did, however, add information in chapter 3 about how the network is used beyond the specific education and medical applications we identified. The officials also pointed out that the state legislature is currently considering a proposal to provide $150 million in educational technology funds. We did not include this information because the proposal had not been adopted as of February 23, 1996, and because the funds would not necessarily pay for costs related to the network. The North Carolina officials told us that the 3,400 sites originally identified as potential connections to the network were meant to represent the maximum potential sites that could be connected and, as such, are not the project’s current goal. They said that the only official recommendation for the number of sites to be connected is the 1993 Governor’s Office estimate of 800 sites to be connected by 1999. We changed the draft to reflect this clarification. Officials with the State Controller’s Office commented that there was no need to further consolidate state information technology management, as recommended by the state auditor. They said that reorganization was unnecessary because the recently created Information Resources Management Commission, which is housed in the Controller’s Office, already performs that function. The state auditor, however, identified several other organizations that still have responsibility in this area. Officials with the Controller’s Office confirmed that the responsibilities of the organizations identified in the state auditor’s report have not changed. We clarified our discussion of this issue and noted that the controller did not concur with the auditor’s recommendation. The Nebraska official who reviewed the draft provided clarifying comments and updated data. Officials with NTIA, including the Director, Public Broadcasting Division, Office of Telecommunications and Information Application, also reviewed the draft. They told us that it accurately portrayed NTIA and its program.","Pursuant to a congressional request, GAO provided information on three states' initiatives to promote increased access and private investment in advanced telecommunications. GAO found that: (1) Iowa, Nebraska, and North Carolina encouraged telephone companies to make private investment in advanced telecommunications infrastructure by offering to become their major customers; (2) in 1987, Iowa financed and built its own network, since the telephone companies were reluctant to make the investment needed to provide these services; (3) by 1990, telephone companies in the other two states began upgrading their systems on their own and were more willing to make investments, since they realized that long-term arrangements provided a steady income and states were better customers than competitors; (4) to provide affordable access to many people, all three states are making advanced telecommunications services available through sites located in public facilities; (5) some states and federal agencies are assisting local organizations by paying some of the equipment and connection costs and reducing the rates for using these services, even at remote locations; (6) all three states plan to make these services available to many more sites over the next several years; (7) the three states have given high priority to connecting high schools to the network, but more than half of the high schools in these states remain unconnected and even more rural high schools are not connected; and (8) building and maintaining consensus among interested parties, addressing the concerns of these parties, and ensuring a stable source of funding will be important to prevent construction delays, promote present and future widespread use by local organizations, and the successful implementation of the advanced telecommunications network."
"While IT can enrich people’s lives and improve organizational performance, we have previously reported that federal IT projects too frequently incur cost overruns and schedule slippages while contributing little to mission-related outcomes. For example, in July 2013, we testified that the federal government continued to spend billions of dollars on troubled IT investments and we identified billions of dollars worth of failed and challenged IT projects. OMB plays a key role in overseeing how federal agencies manage their IT investments by working with them to better plan, justify, and determine how to manage them. Each year, OMB and federal agencies work together to determine how much the government plans to spend on IT projects and how these funds are to be allocated. OMB also guides agencies in developing sound business cases for IT investments and establishing management processes for overseeing these investments throughout their life cycles. The scope of this undertaking is quite large: in planning for fiscal year 2014, 27 federal agencies reported plans to spend about $82 billion on IT.investments, $37.6 billion is to be spent on non-major IT investments, and $5.5 billion is to be spent on classified Department of Defense IT investments. Of that, $38.7 billion is to be spent on major IT Within OMB, the Office of E-Government and Information Technology, headed by the Federal CIO, directs the policy and strategic planning of federal IT investments and is responsible for oversight of federal information technology spending. In June 2009, OMB deployed a public Web site to further improve the transparency and oversight of agencies’ IT investments. Known as the IT Dashboard,performance data for over 700 major federal IT investments at 27 federal agencies, accounting for $38.7 billion of those agencies’ planned $82 billion budget for fiscal year 2014. According to OMB, these data are intended to provide a near-real-time perspective on the performance of these investments, as well as a historical perspective. Further, the public display of these data is intended to allow OMB; other oversight bodies, including Congress; and the general public to hold the government agencies accountable for progress and results. this site displays federal agencies’ cost, schedule, and The Dashboard visually presents performance ratings for agencies and for individual investments using metrics that OMB has defined—cost, schedule, and CIO evaluation. The Web site also provides the capability to download certain data. Figure 1 is an example of VA’s portfolio page as recently depicted on the Dashboard. (The ratings are explained in the narrative following the figure.) The Dashboard’s data spans the period from its June 2009 inception to the present, and is based, in part, on agency assessments of individual investment performance and each agency’s budget submissions to OMB. The cost and schedule data agencies are required to submit to the Dashboard have changed over time, as have the related calculations. For example, in response to our recommendations (further discussed in the following section), OMB changed how the Dashboard calculates the cost and schedule ratings in July 2010 to include “in progress” milestones rather than just “completed” ones for a more accurate reflection of current investment status. While the required cost and schedule data have changed, the thresholds for assigning cost and schedule ratings have remained constant over the life of the Dashboard. Specifically, the Dashboard assigns rating colors (red, yellow, green) based on agency- submitted cost and schedule variances, as shown in table 1. Unlike the variance-based cost and schedule ratings, the Dashboard’s “Investment Evaluation by Agency CIO” (also called the CIO rating) is determined by agency officials. According to OMB’s instructions, each agency CIO is to assess his or her IT investments against a set of six pre- established evaluation factors identified by OMB (shown in table 2) and then assign a rating of 1 (high risk) to 5 (low risk) based on the CIO’s best judgment of the level of risk facing the investment. OMB recommends that CIOs consult with appropriate stakeholders in making their evaluation, including Chief Acquisition Officers, program managers, and other interested parties. According to an OMB staff member, agency CIOs are responsible for determining appropriate thresholds for the risk levels and for applying them to investments when assigning CIO ratings. OMB requires agencies to update these ratings as soon as new information becomes available which will affect an investment’s assessment. After agencies assign a level of risk to each investment, the Dashboard assigns colors to CIO ratings according to a five-point scale, as illustrated in table 3. An OMB staff member from the Office of E-Government and Information Technology noted that the CIO rating should be a current assessment of future performance based on historical results and is the only Dashboard performance indicator that has been defined and produced the same way since the Dashboard’s inception. Furthermore, OMB issued guidance in August 2011other things, that agency CIOs shall be held accountable for the performance of IT program managers based on their governance process and the data reported on the IT Dashboard, which includes the CIO rating. According to OMB, the addition of CIO names and photos on Dashboard investments is intended to highlight this accountability and link it to the Dashboard’s reporting on investment performance. We have previously reported that OMB has taken significant steps to enhance the oversight, transparency, and accountability of federal IT investments by creating its IT Dashboard, and by improving the accuracy of investment ratings. We also found issues with the accuracy and data reliability of cost and schedule data, and recommended steps that OMB should take to improve these data. In July 2010, we reportedOMB’s Dashboard were not always accurate for the investments we that the cost and schedule ratings on reviewed, because these ratings did not take into consideration current performance. As a result, the ratings were based on outdated information. We recommended that OMB report on its planned changes to the Dashboard to improve the accuracy of performance information and provide guidance to agencies to standardize milestone reporting. OMB agreed with our recommendations and, as a result, updated the Dashboard’s cost and schedule calculations to include both ongoing and completed activities. Similarly, our report in March 2011 noted that OMB had initiated several efforts to increase the Dashboard’s value as an oversight tool, and had used its data to improve federal IT management. We also reported, however, that agency practices and the Dashboard’s calculations contributed to inaccuracies in the reported investment performance data. For instance, we found missing data submissions or erroneous data at each of the five agencies we reviewed, along with instances of inconsistent program baselines and unreliable source data. As a result, we recommended that the agencies take steps to improve the accuracy and reliability of their Dashboard information, and that OMB improve how it rates investments relative to current performance and schedule variance. Most agencies generally concurred with our recommendations and three have taken steps to address our recommendation. OMB agreed with our recommendation for improving ratings for schedule variance. It disagreed with our recommendation to improve how it reflects current performance in cost and schedule ratings, but more recently made changes to Dashboard calculations to address this while also noting challenges in comprehensively evaluating cost and schedule data for these investments. We also reported on OMB’s guidance to agencies for reporting their IT investments in September 2011 and found that it did not ensure complete reporting. Specifically, agencies differed on what investments they included as an IT investment. Among other things, we recommended that OMB clarify its guidance on reporting IT investments to specify whether certain types of systems—such as space systems—are to be included. OMB did not agree that further efforts were needed to clarify reporting in regard to the types of systems. Subsequently, in November 2011, we noted that the accuracy of investment cost and schedule ratings had improved since our July 2010 report because OMB had refined the Dashboard’s cost and schedule calculations. Most of the ratings for the eight investments we reviewed as part of our November 2011 report were accurate, although we noted that more could be done to inform oversight and decision making by emphasizing recent performance in the ratings. We recommended that the General Services Administration comply with OMB’s guidance for updating its ratings when new information becomes available (including when investments are rebaselined). The agency concurred and has since taken actions to address this recommendation. Since we previously recommended that OMB improve how it rates investments, we did not make any further recommendations. More recently, in October 2012 we reported that CIOs at six agencies rated a majority of investments listed on the federal IT Dashboard as low or moderately low risk from June 2009 through March 2012. Additionally, two agencies, the Department of Defense and the National Science Foundation, rated no investments as high or moderately high risk during this time period. Agencies generally followed OMB’s instructions for assigning CIO ratings, although the Department of Defense’s ratings were unique in reflecting additional considerations, such as the likelihood of OMB review. Most of the selected agencies reported various benefits associated with producing and reporting CIO ratings, such as increased quality of their performance data and greater transparency and visibility of investments. We recommended that OMB analyze agencies’ investment risk over time as reflected in the Dashboard’s CIO ratings and present its analysis with the President’s annual budget submission, and that the Department of Defense ensure that its CIO ratings reflect available investment performance assessments and its risk management guidance. Both agencies concurred with our recommendations, and OMB reported on CIO rating trends in the fiscal year 2014 budget submission; however, the Department of Defense has not updated any of its ratings since September 2012. Further, we studied OMB’s efforts to help agencies address IT projects with cost overruns, schedule delays, and performance shortfalls in June 2013. In particular, we reported that OMB used CIO ratings from the Dashboard, among other sources, to select at- risk investments for reviews known as TechStats. OMB initiated these reviews in January 2010 to further improve investment performance, and subsequently incorporated the TechStat model into its 25-point plan for reforming federal IT management. We reported that OMB and selected agencies had held multiple TechStat sessions but additional OMB oversight was needed to ensure that these meetings were having the appropriate impact on underperforming projects and that resulting cost savings were valid. Among other things, we recommended that OMB require agencies to address their highest-risk investments and to report on how they validated the outcomes. OMB generally agreed with our recommendations, and stated that it and the agencies were taking appropriate steps to address them. As of August 2013, CIOs at the eight selected agencies rated 198 of their 244 major investments listed on the Dashboard as low risk or moderately low risk. Of the remaining 46 investments, 41 were rated medium risk, and 5 were rated high risk or moderately high risk. Historically, over the life of the Dashboard from June 2009 to August 2013, low or moderately low risk investments accounted for an average of 72 percent of all ratings at the eight agencies, medium risk ratings an average of 22 percent, and high risk or moderately high risk ratings an average of 6 percent. The CIO ratings and associated number of investments at each the eight agencies as reported on the Dashboard over the past 4 years are presented in figure 2. When comparing the investments’ first and most recent ratings, the agencies we reviewed showed generally positive results. Specifically, of the 383 total investments listed on the Dashboard from June 2009 to August 2013 for the selected agencies, 121 increased (meaning risk is lower) and 81 decreased (meaning risk is higher). Additionally, a significant portion of investments had returned to their original rating (74) and about one third of investments’ ratings had never changed (107). (See fig. 3.) When considered individually, five of the eight selected agencies— Agriculture, Commerce, Energy, Treasury, and VA—had more investments’ ratings increase than decrease, whereas the other three— Justice, Transportation, and SSA—had more investments decrease. Figure 4 presents the net changes in investments’ ratings for each agency during the reporting period of June 2009 to August 2013. The agencies cited additional oversight or program reviews as factors that contributed to improved ratings. Furthermore, Agriculture and Commerce both attributed improved ratings to enhanced timeliness and sufficiency of investment reporting. Both of these agencies factor investment reporting into CIO ratings and increased ratings as better performance and risk information was provided by investment management. This suggests that caution should be exercised when interpreting changing risk levels for investments, as rating changes by agencies may not be entirely due to investment performance. Agencies also commented that the CIO ratings and Dashboard reporting had spurred improved investment management and risk mitigation. Additionally, the total number of investments that the eight agencies reported on the Dashboard has varied over time, which impacts the number of investments receiving CIO ratings (see fig. 5). The variation in the number of investments reported on the Dashboard can be attributed, in part, to agencies’ ability to add, downgrade, and remove investments throughout the annual federal budget process. However, as we concluded in September 2011, OMB’s guidance also did not ensure complete reporting of IT investments by agencies. Specifically, we found that OMB’s definition of an IT investment is broad, and the 10 agencies we evaluated differed on what systems they included as IT investments. For example, 5 of the 10 agencies we reviewed consistently considered investments in research and development systems as IT, and 5 did not. Consequently, we recommended that OMB clarify its guidance on reporting IT investments to specify whether certain types of systems—such as space systems—were to be included. OMB did not agree that further efforts were needed to clarify reporting in regard to the types of systems. Now, 2 years later, and given the continuing lack of clarity in investment reporting guidance, agencies have elected to withdraw investments from the Dashboard that are clearly IT. Because we have continued to identify inappropriate reclassifications of IT investments, we continue to believe this recommendation has merit. For example, as part of the most recent budget process, Energy officials reported several of Energy’s supercomputer investments as facilities rather than IT, thus removing those investments from the Dashboard and accounting for a portion of the recent decrease in investments. Energy officials also stated that OMB approved this change. These investments account for $368 million, or almost 25 percent, of Energy’s fiscal year 2012 IT spending, and include the National Nuclear Security Administration’s Sequoia system, which Energy reported as the most powerful computing system in the world as of June 2012. According to Energy officials, these investments were recategorized because they include both supercomputers and laboratory facilities (which are not IT). As another example, the Deputy Secretary of Commerce issued a directive in September 2012 which resulted in the removal of Commerce’s satellite investments from the Dashboard. As we found in 2011, Commerce only reported the ground systems of a spacecraft as IT investments, and not the technology components on the spacecraft itself. With this directive, Commerce removed the ground-based portions from IT investment reporting as well, accounting for $447 million, or 26 percent, of the department’s fiscal year 2012 IT spending. In making this decision, Commerce determined that it needed to refocus oversight efforts to a more appropriate level and consequently minimized the role of the CIO and others in the oversight of satellites. A Commerce official stated that Commerce plans to exclude all such investments from the department’s fiscal year 2015 IT budget submission. Clinger-Cohen Act of 1996 (40 U.S.C. § 11101(6)). and transmit satellite data. A staff member from the Office of E- Government stated that OMB could not stop agencies from making such recategorizations and that OMB had no control over such agency decisions. By gathering incomplete information on IT investments, OMB increases the risk of not fulfilling its oversight responsibilities, of agencies making inefficient and ineffective investment decisions, and of Congress and the public being misinformed as to the performance of federal IT investments. As part of the budget process, OMB is required to analyze, track, and evaluate the risks and results of all major IT investments. The Dashboard gives the public access to the same tools and analysis that the government uses in conducting this performance oversight. According to OMB, Dashboard data are intended to provide a near-real-time perspective on the performance of major investments. http://www.itdashboard.gov/faq. year, OMB decreases the utility of the Dashboard as a tool for greater IT investment oversight and transparency. Of the 80 selected investments at the eight agencies we reviewed, 53 of the CIO ratings were consistent with the risks portrayed in the supporting investment performance documents, 20 were partially consistent, and 7 VA investments were inconsistent. Those that were partially consistent had few instances of discrepancies during the 12-month period. For example, both of Commerce’s inconsistent investments had a discrepancy during 1 of the 12 months which we reviewed. As previously mentioned, a CIO rating should reflect the level of risk facing an investment on a scale from 1 (high risk) to 5 (low risk) relative to that investment’s ability to accomplish its goals. However, seven of the eight agencies we reviewed had at least one instance wherein the Dashboard’s CIO ratings did not consistently reflect the risks identified in agency documents. Table 4 summarizes our assessment of the 10 investments at each of the selected agencies during the 12-month period from January 2012 through December 2012 and a discussion of the analysis of each agency’s documentation follows the table. Agriculture: Eight of the 10 investments at Agriculture had some inconsistencies with reported risks. In particular, Agriculture experienced technical issues uploading its ratings to the Dashboard in early 2012, which impacted the ratings of six investments. Agriculture officials identified an issue with these investments after observing that submitted changes were not reflected on the Dashboard. They addressed this issue by working with their contractor to determine the cause of the issue, modifying their process to prevent the issue from recurring, and establishing procedures to identify future technical issues. Additionally, Agriculture’s Financial Management Modernization Initiative—one of the six investments that experienced the technical issue described above—and Human Resources Line of Business’s October ratings should have been lower (higher risk) in October 2012. Officials stated that these CIO ratings were updated at the beginning of November 2012 and attributed the delays in the rating submissions to the annual budget process. Additionally, Agriculture’s CIO rated the Farm Program Modernization investment as moderately low risk until November 2012, despite the investment showing indications of significantly increased risk as early as May 2012. For example, the number of high and very high risks increased every month in a series of briefings from May to July 2012, at which point there was 1 high-impact risk and 2 very high-impact risks each with an estimated 70 percent probability of occurring. Further, in September 2012 a senior management oversight committee determined the investment to be off-track and unable to resolve the issues. However, the investment remained rated on the Dashboard as moderately low risk until November 2012, when it was updated to medium risk. As a result, the CIO rating did not reflect the results of the oversight committee’s review for 3 months. The investment was ultimately given a high-risk rating in December 2012. Commerce: Two of the 10 selected Commerce investments differed from risk levels identified in underlying documentation for 1 month each. In particular, Commerce’s Census - Economic Census and Surveys investment should have been green rather than yellow in March 2012, and its National Oceanic and Atmospheric Administration IT Infrastructure should have been yellow rather than green in June 2012. In both cases Commerce officials recognized that there were problems and took steps to correct them the following month. Energy: Five of the 10 selected Energy investments remained listed on the Dashboard after the department had recategorized them as investment types that would have no longer been displayed. Specifically, in October 2012, as part of its annual budget process, Energy downgraded its SR Mission Support Systems from major to non-major and, as discussed previously, changed four of the selected supercomputer investments from IT to non-IT. An SR Mission Support Systems official explained that Energy downgraded the investment after realizing that significant portions of it could be interpreted as non-IT under the Federal Acquisition Regulation, and the remainder did not meet the department’s threshold for being a major IT investment. Further, although Energy made these decisions in October 2012, OMB officials explained that they do not publish budgetary data such as these until the release of the President’s budget, which did not happen until April 2013 at which time the Dashboard reflected Energy’s changes. Justice: One of the 10 selected Justice investments remained on the Dashboard after the department recategorized it as an investment type that would have no longer been displayed, similar to Energy’s situation. Specifically, Justice downgraded its Law Enforcement Wireless Communications investment from major to non-major as part of its annual budget process in July 2012, but the Dashboard did not reflect the change until April 2013. As noted above, OMB officials explained that they do not publish budgetary data until the release of the President’s budget, which occurred in April 2013. Transportation: There were no inconsistencies between CIO ratings and reported investments’ risks. Continuing to report consistent and timely data should help ensure that Transportation’s Dashboard’s CIO ratings are accurate. Treasury: We did not identify inconsistencies between CIO ratings and reported investments’ risks. Such attention to reporting consistent and timely data should help ensure the accuracy of the Dashboard’s CIO ratings. VA: Seven of the 10 selected investments were never updated during our evaluation period, and 3 were updated once. VA did not update its ratings because it did not have the ability to automatically submit ratings from September 2011 to March 2013, a period of 19 months. Instead, VA elected to build the capability to submit ratings to the Dashboard, rather than purchase this capability. VA completed development of this tool in March 2013, at which point it resumed making the required updates to CIO ratings on the Dashboard. For the 3 that VA updated during this period, VA used a manual budget process to update their ratings in September 2012. SSA, Information Resources Management Strategic Plan: FY 2012-2016 (May 2012). and schedule variances, prevent the agency from monitoring year-to- year investment performance, and make it difficult to estimate and understand life-cycle costs. While this only affected one investment we reviewed, it has the potential to impact SSA’s entire IT investment portfolio. As described in our Cost Estimating and Assessment Guide, the purpose of such baseline changes should be to restore management’s control of the remaining effort by providing a meaningful basis for performance management. Further, these changes should be infrequent, and recurrent changes may indicate that the scope is not well understood or simply that program management is unable to develop realistic estimates.SSA, frequent rebaselining increases the risk that its investments have undetected cost or schedule variances that will impact the success of the associated investment. While agencies experienced several issues with reporting the risk of their investments, such as technical problems and delayed updates to the Dashboard, the CIO ratings were mostly or completely consistent with investment risk at seven of the eight selected agencies. Additionally, the agencies had already addressed several of the discrepancies that we identified. The final agency, VA, did not update 7 of its 10 selected investments because it elected to build, rather than buy, the ability to automatically update the Dashboard, and has now resumed updating all investments. To their credit, agencies’ continued attention to reporting the risk of their major investments supports the Dashboard’s goal of providing transparency and oversight of federal IT investments. Nevertheless, the rating issues that we identified with performance reporting and annual baselining, some of which are now corrected, serve to highlight the need for agencies’ continued attention to the timeliness and accuracy of submitted information, in order to allow the Dashboard to continue to fulfill its stated purpose. We have previously concluded that, consistent with government and industry best practices, including our own guidance on IT investment management, agencies’ highest-risk investments should receive additional management attention. In particular, agency leaders should use data-driven reviews as a leadership strategy to drive performance improvement. Correspondingly, OMB requires reviews, known as TechStat sessions, to enable the federal government to intervene to turnaround, halt, or terminate IT projects that are failing or are not producing results. Of the 80 investments we reviewed, there were 8 investments at four of the eight selected agencies that received a red (high or moderately high risk) rating in 2012. See figure 6 for a list of those at-risk investments and the associated CIO ratings. Of the eight investments receiving a red rating in 2012, the agencies reviewed seven using tools such as TechStat sessions,investment review boards, and other high-level reviews. Each of these resulted in action items intended to improve performance. The final investment, Agriculture’s Human Resources Line of Business: Service department Center was scheduled to be reviewed using a TechStat session, but in August 2013 officials from Agriculture’s Office of the CIO stated that this investment was in the process of going through a rebaseline. As noted earlier, such changes should be infrequent and reinforce the need for agencies to review the highest-risk investments to ensure that root causes of baseline changes are effectively addressed. Each of these agencies we reviewed had similar approaches to identifying and conducting these reviews. The agencies with red-rated investments in 2012—Agriculture, Commerce, Justice, and Transportation—monitored investment performance, identified troubled investments using a variety of criteria, reviewed investments in need of attention, and assigned and tracked action items. For example, both Agriculture and Commerce identified investments for review using the Dashboard’s CIO ratings. All four agencies further ensured that investments implemented corrective actions resulting from management reviews. For example, as a result of its November 2012 TechStat, Agriculture leaders assigned 17 action items to the Farm Program Modernization investment, which were to be completed by January 2013. Additionally, the four remaining agencies without red-rated investments— Energy, Treasury, VA, and SSA—have documented processes which provide comparable monitoring and oversight capabilities. For example, VA’s process relies on missed deliverable dates as the key requirement to hold a review, after which senior management makes a determination as to the future of the investment. Alternatively, Energy reviews all major IT investments on a quarterly basis and requires those which fall outside expected thresholds to complete corrective actions. As such, all of the agencies have focused management attention on troubled investments and once identified, have established and followed through on clear action items to turn around or terminate such investments. Since its inception in 2009, the IT Dashboard has increased the transparency of the performance of major federal IT investments. Its CIO ratings, in particular, have improved visibility into changes in the risk level of investments over time, as well as agencies’ ability to accomplish their goals. To that end, over the past 4 years, the agencies we reviewed have reported lower risk for more than one quarter of all their investments. However, the effectiveness of the Dashboard depends on the quality of the information that agencies submit. We previously recommended that OMB clarify guidance on whether certain types of systems should be included in IT reporting, but OMB did not agree. Agencies’ subsequent decisions to remove investments from the Dashboard by changing investments’ categorizations represent a troubling trend toward decreased transparency and accountability. Thus, we continue to believe that our prior recommendation remains valid and should be implemented. Additionally, OMB’s annual freeze of the Dashboard for as long as 8 months negates one of the primary purposes of this valuable tool—to facilitate transparency and oversight of the government’s billions of dollars in IT investments. Beyond the transparency they promote, CIO ratings present an opportunity to improve the data and processes agencies use to assess investment risk. Each of the agencies we examined had established such processes, and most of the resulting Dashboard ratings were consistent with underlying documentation. While two agencies, Transportation and Treasury, had ratings that accurately reflected their investments’ supporting documentation, other agencies’ Dashboard ratings were inconsistent with the actual risk of the associated investment. These inconsistencies—such as inaccurate reflection of negative performance, questionable decisions about the recategorization of investments, and too-frequent changes to performance baselines—highlight the continued need for agencies to populate the Dashboard with an accurate representation of the full breadth and health of their investments. In providing this information, agencies will help the Dashboard accomplish its goal of providing transparency and oversight of millions of dollars in federal IT investments. To better ensure that the Dashboard provides meaningful ratings and reliable investment data, we are recommending that the Director of OMB direct the Federal CIO to make accessible regularly updated portions of the public version of the Dashboard (such as CIO ratings) independent of the annual budget process. In addition, to better ensure that the Dashboard provides accurate ratings, we are making three recommendations to the heads of three of the selected agencies. Specifically, we are recommending that: The Secretary of Commerce direct the department CIO to ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard. The Secretary of Energy direct the department CIO to ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard. The Commissioner of the SSA direct the CIO to revise the agency’s investment management processes to ensure that they are consistent with the baselining best practices identified in our published guidance on cost estimating and assessment. We received comments on a draft of this report from OMB and all eight departments and agencies in our review. OMB neither agreed nor disagreed with our recommendation; Agriculture agreed with the report’s findings; Commerce disagreed with our recommendation; Energy concurred with our recommendation with one exception related to supercomputers; Justice, Treasury, and Transportation neither agreed nor disagreed with the report’s findings; VA agreed with the report’s findings; and SSA agreed with our recommendation. Each agency’s comments are discussed in more detail below. In written comments, the Federal CIO neither agreed nor disagreed with our recommendation for OMB to make accessible regularly updated portions of the public version of the Dashboard (such as CIO ratings) independent of the annual budget process. However, OMB also noted that the manner in which agencies submit Dashboard information to OMB makes it difficult to separate materials it believes are predecisional or deliberative. Despite this, OMB agreed to explore whether it would be practical to make the Dashboard more accessible, and to consider how it could separate predecisional or deliberative materials. We support OMB in its efforts to increase public transparency and accountability. OMB continued to disagree with the 2011 recommendation that we believe continues to have merit, related to the clarity of its guidance on whether certain types of systems should be included in IT reporting. OMB believes that the existing guidance is appropriate and does not have plans to review it. However, as noted earlier in this report, we believe that the recommendation is appropriate because the existing guidance does not address key categories of IT investments where we continued to find inconsistencies. OMB also disputed our characterization of two issues. First, OMB noted that up-to-date Dashboard information is available to the agencies and OMB during the budget development period, who use it as a tool for investment oversight and decision making. While we acknowledge that OMB and federal agencies continue to have access to the Dashboard during the budget process, the public display of these data is intended to allow other oversight bodies, including Congress and the general public, to hold government agencies accountable for progress and results. Secondly, OMB stated that it began using the IT Dashboard to help identify at-risk investments starting with its launch in June 2009, rather than 2010. We modified the report to reflect OMB’s statement. OMB also provided technical comments, which we have incorporated in the report as appropriate. OMB’s written comments are provided in appendix III. In written comments, Agriculture’s CIO stated that the department concurred with the content of the report and had no comments. Agriculture’s written comments are provided in appendix IV. In written comments, Commerce agreed with most of the report’s findings but disagreed with our recommendation to ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard. Specifically, Commerce stated that although it is no longer reporting publicly on its satellite ground system investments through the Dashboard, neither the department CIO nor OMB has relinquished its oversight role. Moreover, Commerce stated that it is reviewing its satellites more frequently and in more detail; as an example, the department noted that Commerce’s CIO conducts monthly Dashboard-like assessments that cover the status of the satellite investments. However, regardless of these additional efforts, the removal of the satellite investments from the Dashboard prevents the public display of these data intended to allow OMB and other oversight bodies, including Congress, to hold the government agencies accountable for progress and results. Additionally, as discussed in this report, Commerce’s recategorization of its satellite ground system investments is contrary to the definition of IT as set forth in the Clinger-Cohen Act. Based on these facts, we continue to believe that our recommendation to Commerce that its CIO ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard has merit and should be implemented. Commerce’s written comments are provided in appendix V. The department also provided technical comments related to our characterization of the department’s rating process, which we have incorporated in the report as appropriate. In written comments, Energy concurred, but with a comment regarding our recommendation to ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard. Specifically, while agreeing that Energy should ensure that its IT investments are appropriately categorized, the department stated that it would continue to report investments that it believes should be categorized and managed on the Dashboard, noting that supercomputers would be an exception to this policy. However, this exception runs contrary to the finding on which this recommendation is based, namely that Energy removed $368 million in investments from the Dashboard, including a supercomputer reported in 2012 as the most powerful in the world. While Energy agreed to partner with OMB to develop an alternate mechanism to track and report supercomputer investments to OMB, it is not clear whether this information will be publicly available. Additionally, Energy’s recategorization of its supercomputer investments is contrary to the definition of IT as set forth in the Clinger-Cohen Act, as discussed in this report. Therefore, we disagree that the department’s planned actions adequately address existing requirements for open and transparent reporting of major IT investments, and we stand by our assessment that Energy’s CIO should ensure that the department’s investments are appropriately categorized in accordance with existing statutes and that major IT investments are included on the Dashboard. Energy’s written comments are provided in appendix VI. In comments provided via e-mail on November 6, 2013, a representative of Justice’s Justice Management Division stated that the department had no comments. In comments provided via e-mail on November 1, 2013, Transportation’s Deputy Director of Audit Relations stated that the department had no comments. The department also provided technical comments, which we have incorporated in the report as appropriate. In written comments, the Treasury’s CIO stated that the department had no comments. Treasury’s written comments are provided in appendix VII. In written comments, VA’s Chief of Staff stated that the department generally agreed with the findings of the report and provided general comments in which it confirmed that issues identified in the report had been addressed. Specifically, VA confirmed that the department has implemented the capability to automatically submit CIO ratings to the Dashboard and now uses more specific data to generate the CIO rating, such as the number of “red flags” associated with an investment or the number of TechStat reviews held. Finally, while stating that the department will continue its efforts to improve timely and accurate reporting to the Dashboard, VA also noted that it is important to recognize that the department manages investment delivery at the project level in comparison to the investment level found in the Dashboard. VA’s written comments are provided in appendix VIII. In written comments, SSA’s Deputy Chief of Staff agreed with our recommendation to revise the agency’s investment management processes to ensure that they are consistent with the baselining practices, and discussed planned actions to address it. SSA’s written comments are provided in appendix IX. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to interested congressional committees; the Secretaries of Agriculture, Commerce, Energy, Transportation, Treasury, Veterans Affairs, Attorney General of the United States, Acting Commissioner of Social Security, the Director of the Office of Management and Budget; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions on matters discussed in this report, please contact me at (202) 512-9286 or pownerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix X. Our objectives for this engagement were to (1) characterize the Chief Information Officer (CIO) ratings for selected federal agencies’ information technology (IT) investments as reported on the Dashboard over time, (2) determine the extent to which selected agencies’ CIO ratings are consistent with reported investment risk, and (3) determine the extent to which selected agencies are addressing at-risk investments. To address our first objective, we selected the eight agencies with the most reported major IT spending in fiscal year 2012, after excluding agencies reviewed in our most recent Dashboard report. The eight agencies are the Departments of Agriculture (Agriculture), Commerce (Commerce), Energy (Energy), Justice (Justice), Transportation (Transportation), the Treasury (Treasury), and Veterans Affairs (VA), and the Social Security Administration (SSA). The results in this report represent only these agencies. We downloaded and examined the Dashboard’s CIO ratings for all major investments at the eight agencies (a total of 383 investments reported by these agencies). To characterize the numbers and percentages of major IT investments at each risk level at each of our subject agencies, we analyzed, summarized, and—where appropriate—graphically depicted average CIO ratings for investments by agencies over time during the period from June 2009 to August 2013. Specifically, we compared each investment’s first and last CIO ratings (including those investments that were not on the Dashboard at its inception, and those that were downgraded or eliminated) and summarized the data by agency. To describe whether CIO ratings indicated higher or lower investment risk over time, we calculated the numbers and percentages of investments (by agency and collectively for all the agencies) that maintained a constant rating over the entire performance period, and those that experienced a change to their CIO rating in at least one rating period. Then we analyzed the subset of investments that experienced at least one changed rating and compared the first CIO rating with the latest CIO rating (no later than August 2013) to determine the numbers and percentages of investments (by agency and collectively for all the agencies) that experienced a net rating increase, a net rating decrease, or no net change. We also reviewed investments which had been removed from the Dashboard due to recategorization and compared their definitions to the Clinger-Cohen Act’s definition of IT. We presented our results to each agency and the Office of Management and Budget (OMB) and solicited their input, explanations for the results, and additional corroborating documentation, where appropriate. To accomplish the second objective, we selected the top 10 major investments at each of the eight selected agencies (for a total of 80 investments), with the highest reported IT spending in fiscal year 2012. We reviewed investment documentation (such as executive-level briefings, operational analyses, and TechStat results) and interviewed officials from each of the agencies to understand how they rate and monitor investments. of investment risk and performance (such as cost and schedule variances), which could impact the success of the associated investment. We then organized the results by month, and compared these results to the relevant investment Dashboard CIO ratings for calendar year 2012. Within these artifacts, we identified representations We then evaluated whether each investment’s monthly CIO rating was consistent with reported investment risks, and categorized each investment by the number of months which were inconsistent. Investments which were consistent with underlying documentation for every month in 2012 were categorized as “consistent,” those which were inconsistent for 1 or more months were categorized as “partially inconsistent,” and those with inconsistencies in each month were “inconsistent.” Because we were only evaluating the consistency of Dashboard ratings with reported risk, we did not evaluate the accuracy of the investment documentation. moderately high) rating on the Dashboard during 2012. We reviewed the processes used to address these investments and interviewed relevant officials. We also examined the results of performance reviews and interviewed officials to determine whether the agencies implemented the appropriate risk management processes to oversee and review the selected investments. We conducted this performance audit from February to December 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Below is the list of the investments that are included in this review, as well as the reported fiscal year 2012 IT spending. In addition to the contact named above, individuals making contributions to this report included Dave Hinchman (Assistant Director), Rebecca Eyler, Mike Mithani, Kevin Walsh, and Shawn Ward.","OMB launched the Dashboard in June 2009 as a public Web site that reports performance for major IT investments--on which the federal government plans to invest over $38 billion in fiscal year 2014. The Dashboard is to provide transparency for these investments and to facilitate public monitoring of them. After its launch, OMB began using it to identify at-risk investments. This report (1) characterizes the CIO ratings for selected federal agencies' IT investments as reported on the Dashboard over time, (2) determines the extent to which selected agencies' CIO ratings are consistent with investment risk, and (3) determines the extent to which selected agencies are addressing at-risk investments. GAO selected the eight agencies with the most reported major IT spending in fiscal year 2012 (excluding those GAO recently reviewed) and selected 10 investments at each agency. GAO reviewed the investments' documentation, compared it to the CIO ratings, and reviewed processes used for the highest-risk investments. GAO also interviewed appropriate officials. As of August 2013, the Chief Information Officers (CIO) at the eight selected agencies rated 198 of their 244 major information technology (IT) investments listed on the Federal IT Dashboard (Dashboard) as low risk or moderately low risk, 41 as medium risk, and 5 as high risk or moderately high risk. However, the total number of investments reported by these agencies has varied over time, which impacts the number of investments receiving CIO ratings. For example, Energy reclassified several of its supercomputer investments from IT to facilities and Commerce decided to reclassify its satellite ground system investments. Both decisions resulted in the removal of the investments from the Dashboard, even though the investments were clearly IT. In addition, the Office of Management and Budget (OMB) does not update the public version of the Dashboard as the President's budget request is being created. As a result, the public version of the Dashboard was not updated for 15 of the past 24 months, and so was not available as a tool for investment oversight and decision making. Of the 80 investments reviewed, 53 of the CIO ratings were consistent with the investment risk, 20 were partially consistent, and 7 were inconsistent. While two agencies' CIO ratings were entirely consistent, other agencies' ratings were inconsistent for a variety of reasons, including delays in updating the Dashboard and how investment performance was tracked. For example, the Department of Justice downgraded an investment in July 2012, but the Dashboard was not updated to reflect this until April 2013. Further, the Social Security Administration resets investment cost and schedule performance baselines annually, an approach that increases the risk of undetected cost or schedule variances that will impact investment success. Of the eight investments that were at highest risk in 2012, seven were reviewed by their agencies using tools such as TechStat sessions--evidence-based reviews intended to improve investment performance and other high-level reviews. Each of these resulted in action items intended to improve performance. The final investment was scheduled to have a TechStat, but instead, according to department officials, a decision was made to modify its program cost and schedule commitments to better reflect the investment's actual performance. GAO recommends that OMB make Dashboard information available independent of the budget process, and that agencies appropriately categorize IT investments and address identified weaknesses. OMB neither agreed nor disagreed. Six agencies generally agreed with the report or had no comments and two others did not agree, believing their categorizations were appropriate. GAO continues to believe its recommendations remain valid, as discussed."
"Congress, Presidents, and executive branch agencies create federal advisory committees to gain expertise and policy advice from individuals outside the federal government. Federal advisory committees have historically been created on an ad hoc, provisional basis and are created to bring together various experts—often with divergent opinions and political backgrounds—to examine an issue and recommend statutory, regulatory, or other policy actions. Federal advisory committees are one of only a few formalized mechanisms for private-sector citizens to participate in the federal policymaking process. Congress, the President, and executive branch agency heads may create advisory bodies. In 1972, the Federal Advisory Committee Act (FACA) was enacted to govern advisory committees established or utilized by the President or executive branch agency heads. FACA itself provides a detailed definition of a federal advisory committee. FACA-governed entities are statutorily defined as any committee, board, commission, council, conference, panel, task force, or other similar group, or any subcommittee or other subgroup thereof (hereafter in this paragraph referred to as ""committee""), which is - (A) established by statute or reorganization plan, or (B) established or utilized by the President, or (C) established or utilized by one or more agencies, in the interest of obtaining advice or recommendations for the President or one or more agencies or officers of the Federal Government, except that such term excludes (i) any committee that is composed wholly of full-time, or permanent part-time, officers or employees of the Federal Government, and (ii) any committee that is created by the National Academy of Sciences or the National Academy of Public Administration. It is unclear in some cases, however, whether FACA should apply to particular advisory committees. Advisory bodies statutorily mandated may or may not be obligated to follow FACA requirements—often depending on whether Congress explicitly states in legislation whether FACA should apply. Otherwise, FACA's application can be determined by examining which branch of the federal government appoints committee members and to which branch of the federal government the committee reports its findings. Whether called commissions, committees, councils, task forces, or boards, these entities have addressed a gamut of public policy issues, offering policy recommendations on topics ranging from organ transplant practices to improving operations at the Department of Homeland Security. Pursuant to statute, the General Services Administration (GSA) maintains and administers management guidelines for federal advisory committees. In FY2011, 1,029 FACA committees with a total of 69,750 members reported total operating costs of $395,179,373 among 51 departments and agencies. Agency administrators, the President, and Congress are likely to continue creating federal advisory committees throughout the 112 th Congress. In the 112 th Congress, one bill has been introduced that would affect FACA's implementation and administration. On October 6, 2011, Representative William Lacy Clay introduced H.R. 3124 , the Federal Advisory Committee Act Amendments of 2011. H.R. 3124 would require the selection of advisory committee members without regard to their partisan affiliation and that advisory body subcommittees and privately contracted committees adhere to FACA requirements. Currently, such subcommittees and privately contracted committees are not covered by FACA. Among other changes, H.R. 3124 seeks to clarify the ethics requirements of committee members and increases records access requirements. On October 6, 2011, H.R. 3124 was concurrently referred to the House Committee on Oversight and Government Reform and the House Committee on Ways and Means. On October 13, 2011, the House Committee on Oversight and Government Reform ordered H.R. 3124 to be reported by unanimous consent. No further action has been taken on the bill. H.R. 3124 may clarify certain advisory committee transparency requirements and increase public participation with and records access to federal advisory committees. The bill, however, could increase the time and costs associated with starting and administering advisory committees. This report provides a legislative and executive-branch history of the Federal Advisory Committee Act. It then discusses a variety of studies about the design and utility of such advisory bodies. The report then offers possible considerations when designing an advisory committee and analyzes policy options related to advisory committee design and operations. Although FACA committees did not exist until 1974, George Washington is often credited with initiating a tradition of presidential use of outside expertise when, in 1794, he appointed an ad hoc group of commissioners to investigate the Whiskey Rebellion. Since the 1840s, Congress has legislated control over federal advisory bodies—mostly by limiting funding and committee member pay. In 1842, for example, a law was enacted that prohibited payment to ""any commission or inquiry, except courts martial or courts of inquiry in the military or naval service"" without explicit ""special appropriations."" Similarly, in 1909, another law was enacted that prohibited appropriation to ""any commission, council, board, or other similar body ... unless the creation of the same shall be or shall have been authorized by law."" The law also prohibited the detailing of any federal employee to work on an unauthorized commission. By the 20 th century, some Members of Congress believed the executive branch's advisory bodies were inefficient and not accessible to the public. Some Members believed that the public harbored concerns that a proliferation of federal advisory committees had created inefficient duplication of federal efforts. Moreover, some citizens argued that the advisory entities did not reflect the public will, a point that was punctuated by many committees' policies of closed-door meetings. Congress was called on to increase committee oversight and gain some control over the proliferating advisory boards. Subsequently, Congress enacted the Federal Advisory Committee Act (FACA; 5 U.S.C. Appendix; 86 Stat. 770, as amended). The legislation was enacted in 1972 and requires advisory bodies that fit certain criteria to report annually a variety of information, including membership status and progress, to the General Services Administration (GSA). GSA then reports annually aggregated advisory body information to Congress. Greater detail on the actions of both the legislative and executive branches in FACA's development are provided in the Appendix. FACA attempts to address many of the congressional and citizen concerns about federal advisory committees that were discussed in the section above. The law established the first statutory requirements for management of, access to, and oversight of federal committees. The act requires all advisory committees ""be advisory only,"" and the issues on which they offered determinations are to be ""determined, in accordance with law, by the official, agency, or officer involved."" FACA allocates a variety of oversight and management responsibilities to the standing committees of Congress, the Office of Management and Budget (OMB), agency heads, and the President. FACA requires congressional committees to review continuously whether existing federal advisory committees that fall under their legislative jurisdiction are necessary or redundant. Congress is also to determine if the committees are ""fairly balanced in terms of the points of view represented and the functions to be performed."" FACA committees are to be created with enough autonomy from the appointing power (Congress, the President, or an agency head) as to not be unduly influenced by it. Reporting requirements are to be clearly stipulated, and proper funding and staffing are to be provided. The 1972 statute charted OMB to oversee the management of advisory committees. The OMB director's first mandated task was to review, concurrently with Congress, existing advisory entities to determine whether they should be abolished. The director was to create operating policies for advisory committees, and provide ""advice, assistance, and guidance"" to entities ""to improve their performance."" The guidelines were to include pay rates for members, staff, and consultants—and catalog overall costs for the committees that were to be used for budget recommendations to Congress. Agencies' heads were to ensure proper implementation of OMB's guidelines, and to ""maintain systematic information on the nature, functions, and operations of each advisory committee within its jurisdiction."" In December 1977, the duties charged to OMB were reassigned to the General Services Administration (GSA) by E.O. 12024. GSA now promulgates regulations related to FACA administration and performs annual reporting requirements to Congress. The President is required to report to Congress—within one year of receiving advice from an advisory committee—his determination for action (or inaction) on the committee's recommendation. The President is also required to report annually to Congress the ""activities, status, and changes in the composition of advisory committees in existence during the preceding year."" FACA requires the President to exclude the activities and composition changes of advisory committees related to national security from the report. The law authorizes only Congress, the President, or an agency head to create an advisory committee. FACA requires all committees file a charter prior to their operation. A charter is required to include the committee's objectives, the support agency, the committee's duties, the estimated operating costs, the estimated number of committee meetings, and the anticipated termination date, among other information. Most committee meetings are required to be advertised in the Federal Register and open to the public. In FY2009, 907 active FACA committees reported a total of nearly 82,000 members. In FY2009, the total reported operating costs for these committees were $361,493,408. During FY2010, 992 active committees reported a total of 74,289 members. The operating costs reported for those committees were $386,550,504. In FY2011, 1,029 active committees reported a total of 69,750 members. The FY2011 reported total operating costs were $395,179,373. In the past three years, the number of FACA committees has grown by 100 committees, while the number of committee members has dropped 12,190. Figure 1 , Figure 2 , and Figure 3 show the growth in the reported number of FACA committees, the decrease in the reported number of members serving on FACA committees, and the reported increase in costs (adjusted to 2011 dollars) for FACA committees. Data from the FACA Database demonstrate that the increase in the number of committees is prompted by the statutory creation of new committees. The impetus for the decrease in members, however, is more difficult to determine. At a June 21, 2011, meeting with GSA officials who administer the FACA database, the officials said that the increase in FACA committee membership in FY2009 was prompted largely by an increase in the membership on committees that made recommendations about where and how to distribute appropriations provided by the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). FACA requires that advisory committees make their recommendations accessible to the public. All committee meetings that are bound by FACA are presumed to be open to the public, with certain specified exceptions. Adequate notice of meetings must be published in advance in the Federal Register . Subject to certain records protections provided in the Freedom of Information Act, all papers, records, and minutes of meetings must be made available for public inspection. Membership must be ""fairly balanced in terms of the points of view represented and the functions to be performed,"" and the committee should ""not be inappropriately influenced by the appointing authority or by any special interest."" All advisory committees that are subject to FACA must file a charter every two years. The charter must be sent to the appropriate Senate and House committee of jurisdiction, the agency head of the agency in which the committee is located, and the Committee Management Secretariat in GSA. It must include the advisory committee's mandate and duties, frequency of meetings, and membership requirements. GSA is required annually to review advisory committee accomplishments, respond to inquires from agencies that seek to create new advisory bodies, and maintain an online, publicly accessible database of FACA bodies that includes a variety of information about each entity. Pursuant to FACA, advisory entities that have at least one member who is not a federal employee are subject to the act. The act requires each agency with an advisory committee to have a committee management officer (CMO) who supervises ""the establishment, procedures, and accomplishments of advisory committees established by that agency."" Moreover, the CMO is required to maintain advisory committee ""reports, records, and other papers"" related to the entity's proceedings and ensure that the body adheres to the Sunshine Act (5 U.S.C. §552). Also pursuant to FACA, a ""designated federal official"" (DFO) must be present at committee meetings to call and adjourn meetings. According to OMB Circular No. A-135, FACA committees must be ""essential to the performance of a duty or responsibility conveyed upon the executive branch by law."" The circular then states the following: Advisory committees should get down to the public's business, complete it and then go out of business. Agencies should review and eliminate advisory committees that are obsolete, duplicative, low priority or serve a special, rather than national interest. All committees created since FACA's enactment are required to sunset after two years, unless legislation creating the entity specifies otherwise or the entity is renewed by the power that created it. Scholarship on the creation, operations, and effects of federal advisory committees is limited. One study examined ways Congress can design more effective committees and another explored whether advisory committees serve presidential interests. In addition to competing theories on which branch of the federal government advisory committees serve, scholars have not agreed on a single definition for the committees. Although the definition of an advisory committee can vary across the federal government, FACA-governed entities are defined specifically within the act as any committee, board, commission, council, conference, panel, task force, or other similar group, or any subcommittee or other subgroup thereof (hereafter in this paragraph referred to as ""committee""), which is – established by statute or reorganization plan, or established or utilized by the President, or established or utilized by one or more agencies, in the interest of obtaining advice or recommendations for the President or one or more agencies or officers of the Federal Government, except that such term excludes any committee that is composed wholly of full-time, or permanent part-time, officers or employees of the Federal Government, and (ii) any committee that is created by the National Academy of Sciences or the National Academy of Public Administration. Also pursuant to statute, FACA committees are prohibited from creating policy or issuing regulations. Their role is to remain strictly advisory. One researcher stated that advisory committees have traditionally allowed a President to deflect blame, buy time, and give the appearance of action on issues that are too politically charged, too difficult, to solve. In addition, however, various scholars have noted that commissions are used by presidents to garner greater public support for a policy to which the president is already committed; show symbolic concern over a situation at the highest level of government; establish a fact base for others to use; respond to crises; deflect political heat from the president and allow passions to cool when issues become explosive; overcome the ""stovepipes"" and parochial thinking of the permanent bureaucracy; gather more information about a problem and its policy alternatives; forge consensus among the interests represented on the commission itself; and change the hearts and minds of men. That same researcher attempted to group commissions into three categories: agenda commissions, which aim to attract support and attention to presidential policy initiatives; information commissions, which are designed to give ""new ideas, new facts, and new analysis to policymakers""; and political constellation commissions, which seek to ""foster consensus, compromise, and cooperation in a policy domain."" Another researcher who examined the impetus for committee creation found that some committees are created to acquire new ideas from outside experts. He added, however, that committees may be created to allow politicians to avoid blame for issues that are too cumbersome or too politically charged. Moreover, he stated that Members of Congress may create committees because of the immense workload of legislators. Creating an advisory committee can ""pare down Congress's workload to more manageable dimensions or to handle and manage a problem in a timely manner."" Another FACA study focused on how the structure and composition of a federal advisory committee may affect its deliberative process, and, therefore, its contribution to public policy. Researcher Mark B. Brown studied the requirement that FACA committee membership be ""fairly balanced."" He argued that the distinction between experts and laypeople in advisory committee membership is arbitrary, naïve, and artificial. Mr. Brown wrote: ""… most current advisory committee guidelines rest on an untenable double-standard that directs agencies to evaluate potential expert members of advisory committees solely in terms of their professional qualifications and nonexpert members in terms of the political interests."" It is not true, however, that ""expert"" members of advisory bodies are always treated as not having personal biases. Instead, the federal ethics requirements placed on certain ""expert"" members mandate that they make public certain biases. An expert member who is categorized as a special government employee, for example, is required by federal ethics codes to divulge any potential conflicts of interest and recues him or herself from any actions in which he or she would financially benefit. Since FACA's enactment, scholars and practitioners of government have debated whether advisory bodies, in fact, increase public interaction with the federal government. Other debates continue over whether advisory committees have a positive effect on the federal government, or if they are a symptom of a federal government that is not performing properly. In March 2012, the Government Accountability Office (GAO) released a report that examined FACA and non-FACA federal advisory committees within the Departments of Transportation and Education. GAO used FACA Database documentation and agency official interviews to examine whether the committees were duplicative and whether they were useful. GAO found that while advisory committees are ""generally considered useful and cost efficient mechanisms for federal agencies to obtain advice and input from a range of stakeholders and experts,"" ""the advisory group environment is fluid, and the potential for duplication exists both within and outside the agency."" GAO made one recommendation to the Secretary of Transportation and the Secretary of Energy: Identify and document specific steps that should be taken in periodically assessing potential duplication and the ongoing need for both FACA and non-FACA groups. In addition to the recommendation, GAO noted four practices that it stated can influence the usefulness of an advisory body. The four practices are securing clear agency commitment; finding a balance between responsiveness to the agency and independence; leveraging resources through collaboration with similar groups; and evaluating the group's usefulness to indentify future directions for the group or action to improve its usefulness. As noted earlier, FACA defines an ""advisory committee"" as ""any committee, board, commission, council, conference, panel, task force, or other similar group, or any subcommittee or other subgroup thereof"" that is ""established by statute or reorganization plan,"" ""established or utilized by the President,"" or ""established or utilized by one or more agencies."" All advisory bodies that fit this definition, however, are not necessarily entities that must adhere to FACA. The Code of Federal Regulations defines an advisory committee nearly identically to FACA's definition, but adds that the body must be created ""for the purpose of obtaining advice or recommendations for the President or on issues or policies within the scope of an agency official's responsibilities."" In short, FACA applies when an advisory committee is ""either 'established' or 'utilized' by an agency."" Pursuant to FACA, any advisory body that performs a regulatory or policy-making function cannot be a FACA entity. Although both FACA and the Code of Federal Regulations define advisory committees, it may sometimes be unclear whether some advisory committees—especially those created by statute—must adhere to FACA requirements. Advisory committees created by the executive branch that fit FACA criteria are governed by FACA. Advisory committees that are created by statute, however, may or may not be obligated to follow FACA requirements—often depending on which branch of the federal government appoints committee members and to which branch of the federal government the committee must report its findings. If, for example, a statutorily created advisory committee reported only to Congress and to no one within the executive branch, FACA guidelines likely would not apply. If, however, the same committee reported to both Congress and the President, it is unclear whether FACA guidelines would apply. According to GSA, it is generally up to the agency that hosts the advisory body to determine whether FACA statutes are applicable. To avoid confusion over whether a committee is governed by FACA, Members of Congress can include a clause within committee-creating legislation to explicitly clarify whether a committee is to be subject to FACA. While FACA may improve both the reality and perception of transparent governmental operation and accessibility, its requirements may also place a number of additional chartering, record-keeping, notification, and oversight requirements on the entity. In particular, agencies have claimed that compliance with the various FACA requirements are cumbersome and resource intensive, thereby reducing the ability of committees to focus on substantive issues in a spontaneous and timely fashion. Moreover, other scholars have argued that the scope of the openness requirements could have the practical effect of stifling candid advice and discussion within a committee. Congress may choose to exempt a congressionally-created advisory committee from FACA to allow it to operate more quickly than FACA would permit. For example, the requirement that all meetings be posted ""with timely notice"" in the Federal Register can slow down the daily operations of an advisory committee, which will typically not hold meetings until 15 days after the notice is published. Committees that consist entirely of part- or full-time federal employees are explicitly exempted from FACA, as are committees created by the National Academy of Sciences or the National Academy of Public Administration. Committees created by or operating within the Central Intelligence Agency or the Federal Reserve System are also FACA exempt. Some specific committees—for example the Commission on Government Procurement—have been identified by statute as FACA exempt ( P.L. 105-153 ). On October 6, 2011, Representative William Lacy Clay introduced H.R. 3124 , the Federal Advisory Committee Act Amendments of 2011. H.R. 3124 incorporates language from bills Representative Clay introduced in both the 111 th and 110 th Congresses. H.R. 3124 seeks to clarify some of the language in FACA and make the process of creating a committee and selecting members more transparent and participatory. The bill also incorporates parts of the proposed Transparency and Open Government Act ( H.R. 1144 ) from the 112 th Congress. H.R. 3124 seeks to increase public access to federal advisory committees, clarify ethics requirements of FACA committee members, and extend FACA requirements to federally contracted advisory committees that are currently not governed by FACA. H.R. 3124 was concurrently referred to the House Committee on Oversight and Government Reform and the House Committee on Ways and Means. On October, 13, 2011, the House Committee on Oversight and Government Reform ordered the bill to be reported by unanimous consent. No further action has been taken on H.R. 3124 . H.R. 3124 would modify the committee-member appointment process. The bill adds language requiring agencies to publish a request for comments in the Federal Register prior to making membership appointments. Pursuant to the bill, the public would be allowed to submit their recommendations electronically and the agency would be required to ""consider"" the comments when making appointments to the committee. Additionally, H.R. 3124 would require the selection of members without regard to their partisan affiliation. The measure also requires a review of each committee member appointment to ensure that he or she is properly designated as either a special government employee (SGE) or a representative. Not all committee members must adhere to federal ethics codes, according to the Code of Federal Regulations . If a committee member is designated as an SGE, under 18 U.S.C. §202(a), then he or she is subject to federal ethics regulations. If, however, the employee is deemed a representative, federal ethics codes may not apply. The designation of whether a committee member is an SGE or a representative depends largely on whether the member was selected to provide his or her scientific or scholarly opinion or to serve as an advocate for a particular organization or outcome. Pursuant to FACA, each type of advisory committee member must be appointed under the proper designation, which would determine the ethical standards placed on each member. H.R. 3124 would require each member, at the time of appointment, be explicitly designated and be provided a summary of the ethics requirements associated with that designation. H.R. 3124 would require that advisory body subcommittees and contracted committees adhere to FACA requirements. Currently, such subcommittees and contracted committees are not covered by FACA. H.R. 3124 would require committees to provide a statement declaring their advice or recommendations were made ""independent from the agency."" The bill would require that any individual who ""regularly attends and participates in committee meetings … as if [he or she] were a member"" be regarded as a member of the committee—although they need not be provided a vote or veto power. Agencies would be required to put FACA committee meeting minutes as well as a transcript, audio, or video recording of each meeting on an agency website. In addition, H.R. 3124 would require agencies to put the following FACA committee information on an agency website: A description of the process used to establish and appoint the members of the advisory committee, which is to include: The process for identifying prospective members; The process of selecting members for balance of viewpoints or expertise; The reason each member was appointed to the committee; A justification of the need for representative members, if any. A list of all current members, including, for each member the following: The name of any person or entity that nominated the member; Whether the member is designated as an SGE or a representative; In the case of a representative, the individuals or entity whose viewpoint the member represents. A list of all special government employees members who acquired certification pursuant 18 U.S.C. §208(b), which permits them to provide advice as a committee member—even if there is a conflict of interest—in cases where a federal official determined that ""the interest is not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect from such officer or employee."" The agency must also put online a copy of each such certification, a summary description of the conflict necessitating the certification, and the reason for granting the certification; Any recusal agreement made by a member or any recusal known to the agency that occurs during the course of a meeting or other work of the committee; A summary of the process used by the advisory committee for making decisions; Detailed minutes of all meetings of the committee and a description of committee efforts to make meetings accessible to the public using online technologies (such as video recordings) or other techniques (such as audio recordings); Any written determination by the President or the head of the agency to which the advisory committee reports, pursuant to section 10(d), to close a meeting or any portion of a meeting and the reasons for such determination; Notices of future meetings of the committee; and Any additional information considered relevant by the head of the agency to which the advisory committee reports. The bill also details what information would be required in a FACA committee charter. On December 9, 2011, the Administrative Conference of the United States adopted recommendations that it believes would improve FACA. Some of the 11 recommendations are similar or identical to the reforms included in H.R. 3124 , including a requirement that agencies invite public comment on potential members of a committee prior to member selection, that members' ethics requirements be made explicit prior to committee service, and that any waivers issued to members related to conflict-of-interest requirements be placed on the committee's website. Among other suggestions were removing the cap on the number of FACA committees agencies can create; webcasting meetings when not cost-prohibitive; posting relevant documents online prior to meetings; and requiring statutes that create FACA committees to include details on their mission, duration, membership balance, and budget. Congress has continued to use FACA as a way to gain greater control and oversight of committees created by the President or executive branch agency heads. FACA, however, can also be used to generate increased transparency and enforce consistent recordkeeping among all advisory committees—whether they are created by the legislative or the executive branch. Despite FACA's public notice, public access, and other reporting requirements, some parts of the act remain unclear. Whether an advisory committee should adhere to FACA, for example, is often open to legal interpretation. Congress may choose to enact legislation that would more clearly define which advisory bodies are subject to FACA. The applicability of FACA is most clear when the President or an agency head created a committee. If such a body performed only advisory duties, included at least one member who is not a federal employee, and reported its findings to either an executive branch agency or the President, FACA will, most likely, apply. If, however, that same committee was created by statute and reported to both Congress and the President, its FACA status would be less certain. FACA was primarily created to provide the public and Congress greater access to the operations of certain, qualifying federal advisory committees. Congress may choose to pass legislation that would require all advisory committees to adhere to FACA statutes. Such an action could curb Congress's ability to create committees that have the flexibilities to act more quickly than a FACA committee—because non-FACA entities would not need to comply with all of the act's reporting and transparency requirements. The 112 th Congress could clarify whether any committees created by or reporting to Congress should be considered FACA committees, making it more clear to committees whether they must follow FACA's requirements. Additionally, Members of Congress could place certain desired FACA elements within a committee's statutory authority to tailor an advisory committee to the desired amounts of both flexibility and oversight. If Congress were to enact legislation exempting congressionally-created committees from FACA, concerns about transparency in government may arise. Congress may choose not to enact legislation, which would leave the FACA status of some advisory committees uncertain. This uncertainty could culminate in legal challenges. Congress may also choose to clarify whether federal advisory committee members must abide by ethics requirements that are placed on federal employees. Under current GSA regulations, ""agency heads are responsible for ensuring that the interests and affiliations of advisory committee members are reviewed for conformance with applicable conflict of interest statutes and other Federal ethics rules."" As noted earlier in this report, not all committee members must adhere to federal ethics codes, according to the Code of Federal Regulations . If a committee member is designated as a special government employee, under 18 U.S.C. §202(a), then he or she is subject to federal ethics regulations. If, however, the employee is deemed a ""representative,"" federal ethics codes may not apply. Congress may choose to clarify whether FACA members are to adhere to federal ethics regulations. H.R. 3124 would require that committee members be explicitly designated as government employees or representatives prior to beginning service on an advisory committee. Such legislative language may increase trust in advisory bodies and prevent claims of bias or improper action. Congress, however, may determine that FACA already requires such member designations, and agencies that do not clearly and appropriately assign these designations to committee members is violating the act. Congress may determine that the language in H.R. 3124 , therefore, would be unnecessary or redundant. Congress may also have an interest in making the process for selecting FACA committee members more transparent and participatory. H.R. 3124 would require agencies to publish a request for comments in the Federal Register prior to making membership appointments seeking comments on possible potential members. Agencies then would be required to ""consider"" the comments when making appointments. Additionally, the Administrative Conference of the United States recommended that agencies ""invite public nominations for potential committee members."" Congress may consider requiring public comment on membership appointments to advisory committees. Such action may inject FACA committees with the ideas and opinions of new and creative members. Such a requirement, though, could slow down the process of standing up a federal advisory committee. For example, it may take considerable time to publish a solicitation for comment in the Federal Register . Then agencies would have to provide a comment period, review the comments, and determine a way to demonstrate consideration of the comments received. Among the considerations pertinent to the creation of an advisory committee and to its composition, operation, and effectiveness are the following: defining the committee's purpose, establishing committee membership, defining committee duties, setting the committee's powers, allocating proper support staff and office space, and mandating the committee's reporting requirements. Each committee must be given both a name and certain duties to fulfill. In many committee charters, the entity is introduced by name and then a brief statement of mission is offered. The charter's language may include highlights of agency, presidential, or congressional findings that prompted the committee's creation—but such findings are not required. The charter must identify the authority for the establishment of the committee, including any statutes or other executive branch documents that authorized or required its creation. Advisory committees can be authorized by statute, required by statute, created by executive order, or created by agency authority. The President's Board of Advisors on Historically Black Colleges and Universities, for example, was originally authorized by E.O. 13256 of February 12, 2002. Most recently, on February 26, 2010, Executive Order 13532 renewed the board through December 31, 2012. E.O. 13532 also explicitly rescinded E.O. 13256. In contrast, the Air Traffic Procedures Advisory Committee was created by agency authority. Its powers and mission are detailed in its charter, which is available in the FACA Database. Once committee authority is established, the charter often includes a section on ""duties"" and ""function"" specifying the committee's mandate or responsibilities. The Forestry Research Advisory Council within the Department of Agriculture, for example, has its duties delineated as ""advisory."" The Council shall provide reports to the Secretary of Agriculture, on regional and national planning and coordination of forestry research within the Federal and State agencies, forestry schools, and the forest industries. A committee's powers and objectives are best stated in specific terms to guide the panel's members and staff in carrying out their responsibilities. Charters should authorize enough autonomy to ensure that the advisory body operates independently of its host agency as well as the authority that created it. The assigned objectives should be realistically achieved within the time constraints placed on the committee. The committee will also need time to acquire staff, find suitable office space, and address other logistical concerns. Upon completion of these objectives, the committee will need additional time to create a final report, file any required records, and vacate the office space. There are few restrictions on the membership of FACA committees. As noted earlier in this report, all FACA committees must have at least one member who is not a ""full-time, or permanent part-time"" officer or employee of the federal government. Membership must also ""be fairly balanced in terms of the points of view represented and the functions to be performed by the advisory committee."" Federal ethics statutes and regulations also may affect committee membership. When designing an advisory committee, however, the entity should be designed to ensure completion of the intended mission. The size of the committee should be small enough to allow all members a chance to communicate their expertise and opinion, but large enough to maintain a quorum even when members are absent. Size and member appointment, therefore, will largely depend on the committee's functions and mandate. Members are often appointed on a staggered schedule to ensure that there are always a few continuing committee members serving at any given time. Some committees are designed to include specific members of the federal government or their designees. For example, the 15 committee members written into the charter of the U.S. Military Academy Board of Visitors are the chairperson of the Committee on Armed Services of the Senate, or designee; three other members of the Senate designated by the Vice President or the President pro tempore of the Senate, two of whom are members of the Senate Committee on Appropriations; the chairperson of the Committee on Armed Services of the House of Representatives, or designee; four other members of the House of Representatives designated by the Speaker of the House of Representatives, two of whom are members of the House Committee on Appropriations; and six persons designated by the President. Other committee charters contain specific language in their charters that describe certain qualifications or expertise required for membership. The Exxon Valdez Oil Spill Public Advisory Committee Charter, for example, created a 15-member committee to be filled by members with the following areas of expertise or qualifications: aquaculturist/mariculturist (e.g., fish hatcheries and oyster/shellfish farming); commercial fisher (e.g., commercial fishing for salmon, halibut, herring, shellfish and bottom fish; including boat captains and crews, cannery owners/operators, and fish buyers); commercial tourism business person (e.g., promoting or providing commercial travel or recreational opportunities, including charter boating, guiding services, visitor associations, boat/kayak rental); recreation user (e.g., recreation activities that occur within the area, including kayaking, power boating, sailing, sightseeing); conservationist/environmentalist (e.g., organizations interested in the wise use and protection of natural resources); local government (e.g., incorporated cities and boroughs in the affected area); Native landowner (e.g., regional or village corporations in the affected area established by the Alaska Native Claims Settlement Act); tribal government (e.g., federally recognized tribes in the affected area); scientist/technologist (e.g., organizations, institutions, and individuals involved in, or with expertise in, scientific and research aspects of the affected area/resources and/or the effects of the oil spill and/or the technical application of scientific information); sport hunter/fisher (e.g., hunting and/or fishing for pleasure); subsistence user (e.g., customary and traditional use of wild renewable resources for direct personal or family consumption as food, shelter, fuel, clothing, tools, or transportation; for the making and selling of handicraft articles; and for customary trade); regional monitoring program operator (e.g., monitoring and reporting on environmental conditions in the affected area, including monitoring for pollution and the status of biological resources); marine transportation operator (e.g., transport of goods and services in marine waters, including piloting, tug operations, barge operations, oil tankers and pipelines, shipping companies); and public-at-large (e.g., representing the affected area of the oil spill and its people, resources, and/or economics). Still other charters include membership positions for Members of Congress, the President, or agency heads to appoint. By granting appointment powers to a variety of federal institutions and to those with a variety of viewpoints, a committee can gain a widespread base of support. With a varied membership, however, the entity that created the committee may lose some control over the actions or direction of the advisory body because the members may not reflect the desired ends of Congress, the President, or an agency head. A multifarious membership may also make the final report more difficult to create because there may be little agreement on what recommendations or advice should be given. Advisory panel members who are not employees or officers of the federal government may or may not receive compensation for their work on a committee. The authority that designs the committee also determines whether committee members are to receive pay, and—if they are paid—their pay level. Neither committee members nor staff may be paid more than the equivalent of Executive Level IV ($155,500 for 2011). Committee members and staff may also be paid for travel expenses as well as a per diem. Advisory committee staff must be assembled quickly if the entity is to complete its mission in the time allotted. Generally speaking, most committees include an executive director, staff members, committee members, and—occasionally—outside consultants. While committee staff may draft most of what will become a committee's final report, committee members approve the final product. In addition to a final report, some committees may be required to make interim or annual reports to the President, Congress, or department heads. These reports are often listed in the ""duties"" section of a committee's charter. A committee's recommendations are strictly advisory and cannot make policy action by recipients of the report. In the case of a presidential advisory committee, however, the President must submit to Congress—within a year of receiving a committee's final report—any actions he will take on the recommendations. If the President does not make policy changes resulting from the recommendations, he must explain his inaction. A statute that creates a FACA committee can include instructions for the entities that receive a final report. For example, a statute can require the President to send a report to Congress with policy suggestions that are based on the committee's recommendations. The effort the President might put into creation of that report, however, may largely correspond to the administration's interest in the committee and its findings. If the President is not particularly interested in the committee's issues or mission, he may not place much effort into a required report to Congress. He also may not give much attention to the advisory body's recommendations overall. Explicit authority may be needed to accomplish certain special duties for which an advisory body may be responsible. Many committees are granted authority to hold hearings, take testimony, receive evidence, use the franking privilege, accept certain donations, and permit volunteers to work on the staff. Vesting a committee with subpoena power, however, is done on a very selective basis—and is largely dependent upon the mission of the panel. A document search of the FACA Database found no current advisory committee charters that provide subpoena powers. One charter, however, explicitly denied the entity such authority. Specific procedural requirements—like quorum qualifications—can often be found in committee charters. Other bylaws, including election procedures to determine a chairperson, to tally committee votes, to fill membership vacancies, and to produce reports may be included in the charter. Committee procedures may be included in the legislation that creates an advisory body. If committee procedures are provided by statute, Congress may have greater control over the body's operations, procedures, and outcomes. Conversely, if procedures are in statute, the advisory body may not have the autonomy to conduct meetings that provide for optimal opportunity to share candid advice and present new ideas. Unless an advisory committee charter states otherwise, the General Services Administration's designated federal officer is responsible for approving or calling the meeting of the committee, approving the committee agenda (except for presidential advisory committees), adjourning meetings when it is determined to be in the public interest, and certifying minutes. Congress may directly fund a committee through the appropriations process, or it may carve out funding within an agency's annual appropriation. If a federal advisory body is not explicitly prohibited from doing so, it may also be funded through private donations. A committee charter may include a determination as to whether an entity may accept such private financial gifts. If a committee is permitted to accept donations or other, in kind, gifts, the authority that created the advisory body may require detailed recordkeeping of such donations in order to maintain transparency and to avoid the perception of undue influence. Unless statutorily mandated or otherwise extended by the President or a federal officer, an advisory committee will automatically terminate, pursuant to FACA, two years after its establishment. Consequently, most advisory committees must be rechartered with GSA every two years. Most national study committees created by statute are mandated to terminate 30 days after the submission of the final report, giving staff time to prepare the office for closing. The Legislative and Executive Branch Background to FACA Enactment of FACA occurred over many decades and included debates and hearings in many congressional sessions as well as actions by the executive branch. This Appendix provides details on both legislative branch and executive branch actions that culminated in enactment of FACA. The Department of Justice In the 1940s and 1950s private sector industries began creating advisory committees that attempted to influence federal government operations. In the 1950s, some of these entities were created under official auspices, using guidelines formulated by the Department of Justice (DOJ) in 1950. These entities operated without explicit legislative or executive branch authority, but attempted to affect federal policies and practices. Government officials—including both the legislative and executive branches—as well as members of the general public grew concerned that these ad hoc committees were overstepping their authority. At various points within that era, DOJ released legal opinions on the creation, structure, and oversight of advisory committees. A 1944 statement by then-Attorney General Francis Biddle, for example, outlined limits to private industry's ability to form advisory committees that offered unsolicited policy advice to the government. According to Biddle's statement, ""the responsibility for the formation of an industry committee to advise any particular department of the government is the responsibility of that department."" A 1955 opinion released from the Office of the Deputy Attorney General created a five-pronged collection of guidelines for the creation of a valid federal advisory committee. They were as follows: 1. There must be either statutory authority for the use of such a committee, or an administrative finding that use of such a committee is necessary in order to perform certain statutory duties. 2. The committee's agenda must be initiated and formulated by the government. 3. Meetings must be called and chaired by full-time government officials. 4. Complete minutes must be kept of each meeting. 5. The committee must be purely advisory, with government officials determining the actions to be taken on the committee's recommendations. Congressional Action On January 22, 1957, Representative Dante Fascell introduced a bill that would have made DOJ's five advisory committee requirements law (H.R. 3378; 85 th Congress). The bill included language noting ""an increasing tendency among Government departments and agencies to utilize the services of experts and consultants as advisory committees or other consultative groups,"" but warned that ""protection of the public interest requires that the activities of such committees and groups be made subject to certain uniform requirements."" In addition to making the five DOJ standards law, the bill would have required the President to submit to Congress an annual report ""detailing the membership of each advisory committee used by each Federal department of agency; the function of each such committee; and the extent to which the operations of the committees have complied with the Standards provided in this Act."" The bill, as amended, passed the House on July 10, 1957. The bill was sent to the Senate and referred to the Government Operations Committee. No further action was taken. The President and the Executive Branch In 1962, President John F. Kennedy issued an executive order (E.O. 11007) that reinforced the DOJ advisory committee requirements. The executive order defined an advisory committee as any committee, board, commission, council, conference, panel, task force, or other similar group ... that is formed by a department or agency of the Government in the interest of obtaining advice or recommendations ... that is not composed wholly of officers or employees of the Government. E.O. 11007 also limited the lifespan of all federal advisory committees to ""two years from the date of its formation"" unless special actions were taken by an agency or department head to continue the committee. On March 2, 1964, the Bureau of the Budget issued Circular No. A-63, which laid out the executive branch's policies for creating, maintaining, and terminating advisory committees. The circular included guidelines that discouraged dual chairmanships, required annual status reports to the Bureau of the Budget, and compelled all advisory entities not created by statute to be called committees—not commissions, councils, or boards. Throughout the early 1960s and early 1970s, while Congress was holding hearings to determine effective ways to gain oversight and control over advisory committees, executive branch representatives maintained that legislation was unnecessary and used Circular No. A-63 as evidence of systematic oversight of advisory committees. On June 5, 1972, just months prior to congressional passage of the Federal Advisory Committee Act, President Richard M. Nixon issued Executive Order 11671, which delineated new operating, transparency, and oversight standards for advisory entities. The order incorporated many of the elements within the bill that was to become FACA, including vesting the Office of Management and Budget (OMB—formerly the Bureau of the Budget) with oversight responsibilities for committee management. Congressional Reaction Congress held a series of hearings to examine the executive branch's use of federal advisory committees throughout the late 1960s and early 1970s. During an introduction to one of the hearings, the Senate Committee on Government Operations' Subcommittee on Intergovernmental Relations Chairman Edmund S. Muskie stated that Congress was using the hearings to examine ""two fundamentals, disclosure and counsel, the rights of people to find out what is going on and, if they want, to do something about it."" More than 30 witnesses testified before the Senate Subcommittee on Intergovernmental Relations over 12 days of hearings—from June 10 through June 22, 1971. As a result of the hearings, some Members concluded that advisory committees were ""a useful means of furnishing expert advice, ideas and recommendations as to policy alternatives"" but ""there [were] numerous such advisory bodies that are duplicative, ineffective and costly, and many which have outlived their usefulness, and that neither the Federal agencies, the Executive Office of the President, nor the Congress, have developed any effective mechanisms for evaluating."" In December 1970, the House Committee on Government Operations' Special Studies Subcommittee issued a comprehensive report titled ""Role and Effectiveness of Federal Advisory Committees,"" which compiled research and information gathered from federal agencies from 1969 through 1970. The studies included policy recommendations for advisory bodies. On February 2, 1971, Representative John Mongan introduced the Federal Advisory Committee Standards Act (H.R. 4383; 92 nd Congress), which incorporated many of the study's recommendations. The bill addressed the responsibilities of Congress, the director of OMB, the President, and agency heads to control and maintain federal advisory bodies. For example, congressional committees with legislative jurisdiction over particular issues were to review all advisory bodies related to that topic. The congressional committees were then to eliminate any statutorily created advisory bodies they believed were duplicative, clarify advisory body missions, and ensure that adequate staff and resources were assigned to advisory bodies under their jurisdiction. Additionally, the congressional committees were to make certain the ad hoc advisory committees had ""a date established for termination and for submission of the committee report."" The director of OMB was to conduct a ""comprehensive review"" of duplicative advisory bodies and recommend to the relevant authority whether they should be eliminated or merged into existing advisory entities. The director was to work with Congress and agency heads to ""provide advice, assistance, guidance, and leadership to advisory committees."" In the Senate, Senator William V. Roth, Jr., and others, introduced a similar bill (S. 1964) ""to authorize the Office of Management and Budget to establish a system of governing the creation and operation of advisory committees throughout the Federal Government."" During introductory remarks on the Senate Floor on May 26, 1971, Senator Roth acknowledged a lack of congressional oversight of the more than 2,600 such advisory entities operating in the federal government. Advisory committees have contributed substantially to the effectiveness of the Federal Government in the past. But as the function of Government has become more complex and the decisions more difficult, numerous advisory committee have sprung up to advise the President and other decision-makers in the Federal Agencies and the Congress. Over 2,600 interagency and advisory committees exist today and it is possible that this figure could be as high as 3,200. In spite of the large number of advisory committees and their participation in the process of government, Congress has neglected to provide adequate controls to supervise their growth and activity. As a result, the use of committees or advisory groups has come under strong attack in the press and other media as wastes of time, money, and energy. The creation of another committee is often viewed by the public as another indication of inefficiency and indecisiveness in Government. S. 1964 was referred to the Senate Committee on Government Operations. No further action was taken on the bill. On May 9, 1972, Members of the House voted overwhelmingly (357 to 9) to approve H.R. 4383, with several amendments, including the addition of ""openness provisions"" that required public notice of advisory body meetings and public access to advisory body files under the Freedom of Information Act (5 U.S.C. §552). The bill was then sent to the Senate. S. 3529, introduced on April 25, 1972, merged the goals of a number of pending advisory committee bills. According to the Senate report that accompanied the bill, S. 3529 aimed to make advisory committees less redundant and more accessible. The purpose of S. 3529 is to: strengthen the authority of Congress and the executive branch to limit the use of Federal advisory committees to those that are necessary and serve an essential purpose; provide uniform standards for the creation, operation, and management of such committees; provide that the Congress and the public are kept fully and currently informed as to the number, purposes, membership, and costs of advisory committees, including their accomplishments; and assure that Federal advisory committees shall be advisory only. Within the Senate, debate on advisory committees centered on whether to make public participation and transparency of meetings and recordkeeping mandatory. S. 3529 required facilitating public information requests by making committee records subject to the Freedom of Information Act (FOIA). The bill, however, did not include explicit requirements for committee membership or participation. When the bill came up for vote on the Senate floor, an amendment was added exempting committees that furnish ""advice or recommendations only with respect to national security or intelligence matters"" from reporting requirements. Another amendment exempting the Federal Reserve Advisory Council was also added to the bill. S. 3529 passed the Senate by voice vote on September 12, 1972. The Senate then struck all the House language of H.R. 4383 and replaced it with that of S. 3529. The Senate then passed H.R. 4383 as amended. A conference report that reconciled differences between the House and Senate versions of H.R. 4383 was published on September 18, 1972. The final bill included reporting requirements for advisory committees planning to hold meetings, and ensured public inspection of advisory committee materials would be possible. The conference report was adopted by the Senate on September 19, 1972, and by the House on September 20. President Nixon signed the Federal Advisory Committee Act into law (P.L. 92-463) on October 6, 1972. Following the signing of FACA, then-President Nixon rescinded E.O. 11671, which previously had been the primary document guiding the creation and operation of federal advisory bodies. Legislative and Executive Branch Efforts After FACA's Enactment In the years since FACA's enactment, congressional oversight hearings have resulted in legislative and executive branch attempts to clarify the statute or streamline the number of FACA committees. One substantial amendment to FACA was the 1977 Federal Advisory Committee Act, which incorporated the Sunshine Act ( P.L. 94-409 ) into the law. The Sunshine Act is specifically designed to make government agency meetings more publicly accessible and transparent. Another significant change in FACA's administration came in December 1977 when Executive Order 12024 transferred advisory committee oversight duties from the Director of OMB to the Administrator of General Services. Additional executive orders have been issued since the law's inception; many of them abolished particular federal advisory committees or lengthened the lifespan of others. From 1983 through 1989, legislation was introduced in Congress to strengthen FACA's management controls, as well as to establish new ethical, financial, and conflict-of-interest disclosure requirements for committee members. None of these bills were enacted. On February 10, 1993, President William J. Clinton issued Executive Order 12838, which required each executive department to ""terminate not less than one-third of the advisory committees subject to FACA (and not required by statute) ... by the end of fiscal year 1993."" Agency heads were required to review all advisory committees under their jurisdictions and eliminate them or justify in writing why they were necessary to continue. Committees would need approval from the OMB director to continue operation. The following year, as part of the National Performance Review, Vice President Albert Gore issued a memorandum requiring all agencies to reduce advisory committee costs by 5%. The memorandum also stated that President Clinton would not support legislation that established a new advisory committee or exempted an advisory committee from FACA. On October 5, 1994, Alice M. Rivlin, then-acting director of OMB, released a circular detailing management policies for remaining FACA committees. The circular reinforced the Clinton Administration's decision to reduce the number of advisory committees and cut costs. It also laid out the criteria GSA was to use when evaluating the utility of existing advisory bodies, and it required GSA to create a variety of operating and reporting guidelines for advisory committees. In 1995, two FACA-related laws were enacted. The first exempted intergovernmental advisory actions—official advisory efforts between federal officers and officers of state, local, or tribal governments—from FACA ( P.L. 104-4 ). The second was a law that eliminated GSA's annual reporting requirements to Congress ( P.L. 104-66 ). Pursuant to the law, GSA stopped creating its Annual Report to Congress in 1998, but GSA officials continue to collect and examine data on FACA committees and publish it in the Annual Comprehensive Review, an additional oversight document required by FACA. The Review is used to determine whether advisory bodies are executing their missions and adhering to statutes, or whether they are in need of revision or abolition. The Federal Advisory Committee Act Amendments of 1997 ( P.L. 105-153 ) further provided for public comment of committee membership and public attendance at committee meetings for advisory bodies that existed within the National Academy of the Sciences or the National Academy of Public Administration.","Federal advisory committees—which may be designated as commissions, councils, or task forces—are created as provisional advisory bodies to collect viewpoints on various policy issues. Advisory bodies have been created to address a host of issues and can help the government manage and solve complex or divisive issues. Congress, the President, or an agency head may create a federal advisory committee to render independent advice or make policy recommendations to various federal agencies or departments. In 1972, Congress enacted the Federal Advisory Committee Act (FACA; 5 U.S.C. Appendix—Federal Advisory Committee Act; 86 Stat.770, as amended). Enactment of FACA was prompted by the perception that advisory committees were duplicative, inefficient, and lacked adequate control or oversight. FACA mandates certain formal structural and operational requirements, including formal reporting and oversight procedures. Additionally, FACA requires committee meetings be open to the public, unless they meet certain requirements. Also, FACA committee records are to be accessible to the public. Pursuant to statute, the General Services Administration (GSA) maintains and administers management guidelines for federal advisory committees. During FY2011, 1,029 active committees reported a total of 69,750 members. Operating costs for those committees reportedly was $395,179,373, of which $188,342,083 was reportedly spent on federal staff to support the committees' operations. FACA was originally enacted to make executive branch advisory committee operations more accessible and transparent. Congress can decide, however, to apply FACA's requirements to a legislative branch advisory committee. Existing statutes are sometimes unclear as to whether a congressionally created committee would have to comply with FACA's requirements—except in cases when the statute includes language that indicates whether the act is to apply. In the 112th Congress, one bill has been introduced that would modify FACA's implementation and administration. On October 6, 2011, Representative William Lacy Clay introduced H.R. 3124, the Federal Advisory Committee Act Amendments of 2011. Among other changes, the bill would require the selection of advisory committee members without regard to their partisan affiliation. In addition, H.R. 3124 would create a formal process for the public to recommend potential advisory committee members. The bill seeks to clarify the ethics requirements placed on committee members, and the bill increases records access requirements. On October 6, 2011, the bill was concurrently referred to the House Committee on Oversight and Government Reform and the House Committee on Ways and Means. On October 13, 2011, the House Committee on Oversight and Government Reform ordered the bill to be reported by unanimous consent. No further action has been taken on the bill. In addition to considering H.R. 3124, the 112th Congress may create new advisory bodies as well as oversee the operations of existing bodies. This report offers a history of the Federal Advisory Committee Act, examines its current requirements, and analyzes various advisory body design elements and operations."
"The Transportation, Housing and Urban Development, and Related Agencies (THUD) appropriations subcommittees are charged with drafting bills to provide annual appropriations for the Department of Transportation (DOT), Department of Housing and Urban Development (HUD), and related agencies. Typically, these bills are reported out by the appropriations committees and passed by the House and Senate, which then produce a conference agreement. Title I of the annual THUD appropriations bill funds the Department of Transportation. DOT is primarily a grant-making and regulatory organization. Its programs are organized roughly by mode, providing grants to state and local government agencies to support the construction of highways, transit, and intercity passenger rail infrastructure, while providing regulatory oversight to promote safety for the rail, transit, commercial trucking and intercity bus, and maritime industries. The exception is aviation; the Federal Aviation Administration (FAA) not only administers grants for airport development and regulates the safety of aviation operations, but also operates the U.S. air traffic control system. It accounts for the majority of the employees of DOT. Title II of the annual THUD appropriations bill funds the Department of Housing and Urban Development. HUD's programs are primarily designed to address housing problems faced by households with very low incomes or other special housing needs. These include several programs of rental assistance for persons who are poor, elderly, and/or have disabilities. Three rental assistance programs—Public Housing, Section 8 Vouchers, and Section 8 project-based rental assistance—account for the majority of the department's nonemergency funding. Two flexible block grant programs—HOME and Community Development Block Grants (CDBG)—help communities finance a variety of housing and community development activities designed to serve low-income families. Other, more specialized grant programs help communities meet the needs of homeless persons, including those with AIDS. HUD's Federal Housing Administration (FHA) insures mortgages made by lenders to home buyers with low downpayments and to developers of multifamily rental buildings containing relatively affordable units. Title III of the THUD appropriations bill funds a collection of related agencies. The agencies under the jurisdiction of the subcommittees are a mix of transportation-related agencies and housing and community development-related agencies. They include the Access Board, the Federal Maritime Commission, the National Transportation Safety Board, the Amtrak Office of Inspector General (IG), the Neighborhood Reinvestment Corporation (often referred to as NeighborWorks), the United States Interagency Council on Homelessness, and the costs associated with the government conservatorship of the housing-related government-sponsored enterprises, Fannie Mae and Freddie Mac. For more about the composition of the THUD funding bill, see Appendix B . Table 1 provides a timeline of legislative action on the FY2014 THUD appropriations bill, and Table 2 lists the total funding provided for each of the titles in the bill for FY2013 and the amount requested for that title for FY2014. As is discussed in the next section, much of the funding for this bill is in the form of contract authority, a type of mandatory budget authority. Thus, the discretionary funding provided in the bill (often referred to as the bill's 302(b) allocation) is only around half of the total funding provided by this bill. For more information about the composition of THUD funding, see Appendix B . The congressional appropriations process for FY2013 funding for THUD (and other federal agencies) was unusually complex. Funding for the first half of FY2013 was provided through a continuing resolution at roughly the same level as in FY2012. Midway through the year Congress passed P.L. 113-6 , a consolidated appropriations act; this bill included several appropriations acts and a continuing resolution providing funding for the remaining federal agencies and departments (including all those typically funded by the THUD appropriations bill) for the rest of FY2013. This act generally funded THUD agencies at their FY2012 levels, with several exceptions (anomalies). It also included a 0.2% across-the-board rescission to the funding provided to federal agencies in the bill. However, final FY2013 funding was further reduced by an across-the-board reduction, or sequestration, required by the Budget Control Act of 2011 (BCA, P.L. 112-25 ), as amended by the American Taxpayer Relief Act (ATRA, P.L. 112-240 ). When Congress failed to take action to reduce future deficits as required by the BCA, automatic cuts required by that act went into effect. On March 1, 2013, President Obama ordered the BCA-mandated sequestration. It required a 7.8% reduction in non-exempt defense discretionary funding, a 5.0% reduction in non-exempt nondefense discretionary funding, a 5.1% reduction for most non-exempt nondefense mandatory funding, and a 7.9% reduction for non-exempt defense mandatory funding. These percentages were then applied to the funding levels in place at the time (the six-month CR) in order to calculate dollar amount reductions for each non-exempt program, project, or activity. Around two-thirds of total DOT spending comes from the highway trust fund and is exempt from sequestration under Section 255 of P.L. 99-177 as amended, so the overall reduction in DOT funding was closer to 2%. According to a report accompanying the order, funding for DOT's programs and activities for FY2013 was reduced by about $1.6 billion as a result of the sequester. The largest DOT programs subject to the cuts were the Federal Aviation Administration, the Federal Transit Administration's New Starts Program (which provides funding to local governments for new subway and light rail transit lines), and the Federal Railroad Administration's grants to Amtrak. Because the cuts to FAA's funding could have led to disruptions in air travel due to furloughs of air traffic controllers, Congress enacted P.L. 113-9 in April 2013 to allow the DOT to transfer funding from other accounts to avoid controller furloughs. Nearly all of HUD's budget is non-exempt nondefense discretionary funding, and was thus subject to a 5.1% reduction in funding under the sequestration order. In total, funding for HUD's programs and activities for FY2013 was reduced by about $3 billion as a result of sequestration. The President's FY2014 budget requested $76.9 billion in new budget resources for DOT. The requested funding was $5.6 billion more than the amount enacted for FY2013 (not counting $13.7 billion in FY2013 emergency funding). The biggest change in the FY2014 request was a request for an additional $5 billion for passenger rail facilities. Both the House and Senate bills declined to support that request. The Senate bill proposed $73.0 billion, $1.7 billion (2%) more than the enacted FY2013 amount. The House bill proposed $70.3 billion, $1.4 billion (2%) less than the enacted FY2013 amount, and $2.75 billion less than the Senate bill. The major differences between the House and Senate bills are that the House bill proposed to zero out the Transportation Investments Generating Economic Recovery (TIGER) grant program (and rescind $237 million of FY2013 funding for that program), would have provided roughly $800 million less for the Federal Aviation Administration's Operations and Facilities & Equipment accounts, would have provided $500 million less for bridge repairs funded by the Federal Highway Administration, would have provided roughly $500 million less for Amtrak and $100 million less for passenger rail grants, and would have provided roughly $350 million less for Federal Transit Administration programs. The President's FY2014 budget requested nearly $35 billion in net new budget authority for HUD in FY2014. Congress enacted $33.4 billion for HUD in FY2013, pre-sequester, or $31.4 billion post-sequester. The House bill ( H.R. 2610 ) would have provided $28 billion in net new budget authority, while the Senate bill ( S. 1243 ) would have provided just over $35 billion. In addition to requiring the sequestration discussed earlier in this report, the BCA, as amended by ATRA, also established discretionary spending limits for FY2012-FY2021. Through FY2014, separate caps are established for defense and nondefense spending. If the caps are violated, another sequestration would be ordered in order to bring spending within the caps. For FY2014, both the House and Senate appropriations bills, if enacted, would violate the spending caps and trigger a sequestration. In the House, the overall spending total is in line with the overall BCA cap, but the House's division of spending between defense and non-defense accounts violates the BCA terms, with the defense portion of the budget exceeding its cap. In the Senate, the overall budget total exceeds the overall BCA cap. If either were to become law, without other changes, a budget enforcement sequestration would likely take place. In the case of the House level, the sequestration would only affect defense spending; in the case of the Senate level, both defense and non-defense spending would be affected. Table 3 shows funding trends for DOT and HUD over the period FY2008-FY2013, omitting emergency funding and other supplemental funding, and the amounts requested for FY2014. The purpose of Table 3 is to indicate trends in regular funding for these agencies, which is why emergency supplemental appropriations are not included in the figures. Table 4 presents a selected account-by-account summary of FY2014 appropriations for DOT, compared to FY2013. Overall, the FY2014 request totaled $76.9 billion in new budget resources for DOT. The requested funding was $5.6 billion more than enacted for FY2013, and $6.3 billion more than actually received (not counting emergency funding provided in FY2013). The biggest change in the request from current funding is a request for an additional $5 billion for passenger rail grants. Over and above the $76.9 billion, the Administration also proposed an additional $50 billion for immediate transportation investments; similar proposals have been included in previous years' requests. The House and Senate bills do not support this proposal. The House bill would provide $70.3 billion for FY2014. The largest source of the difference between the amount requested and the House bill is the Administration's request for almost $5 billion in additional resources for passenger rail development, which the House bill does not provide. Also, the House bill would not only zero out the $500 million TIGER grant program request, but would also rescind $237 million from the TIGER funding provided for FY2013, a $737 million difference from the budget request. The Senate bill would provide $73.0 billion for FY2014. As with the House bill, the primary difference (in dollar terms) between the Senate bill and the Administration's request is the almost $5 billion in additional funding for passenger rail development, which the Senate bill also omits. Virtually all federal highway funding, and most transit funding, comes from the highway trust fund, whose revenues come largely from the federal motor fuels excise tax (""gas tax""). For several years, expenditures from the fund have exceeded revenues; for example, in FY2010, revenues were approximately $35 billion, while authorized expenditures were approximately $50 billion. Congress transferred a total of $34.5 billion from the general fund of the Treasury to the highway trust fund during the period FY2008-FY2010 to keep the trust fund solvent. In January 2012 the Congressional Budget Office projected that the trust fund would become insolvent around the end of FY2013, given current revenue and expenditure levels. The Moving Ahead for Progress in the 21 st Century Act, or MAP-21 ( P.L. 112-141 ), enacted in 2012, authorized additional transfers from the general fund to the highway trust fund to keep the fund solvent through FY2014. One reason for the shortfall in funding in the highway trust fund is that the federal gas tax has not been raised since 1993, while improved fuel efficiency and inflation have reduced the amount of fuel consumed and the value of the tax revenues. The tax is a fixed amount assessed per gallon of fuel sold, not a percentage of the cost of the fuel sold: whether a gallon of gas costs $1 or $4, the highway trust fund receives 18.3 cents for each gallon of gasoline and 24.3 cents for each gallon of diesel. Meanwhile, the capacity of the federal gas tax to support transportation infrastructure has been diminished by inflation (which has reduced the purchasing power of the revenue raised by the tax) and increasing automobile fuel efficiency (as more efficient vehicles are able to travel farther on a gallon of fuel). The Congressional Budget Office has forecast that gasoline consumption will be relatively flat through 2022, as continued increases in the fuel efficiency of the U.S. passenger fleet will offset increases in the number of miles people will drive. It forecasts highway trust fund revenues of $41 billion in FY2022, well short of even the current annual level of authorized expenditures from the fund. A host of reports produced by the Department of Transportation, congressionally created commissions, and nongovernmental groups generally assert that the nation is not spending enough to maintain its existing transportation infrastructure, let alone to make desired improvements. These reports call for considerably higher levels of spending on transportation infrastructure, by both the federal government and the states. When the authorization provided by MAP-21 expires at the end of FY2014, Congress will again face policy choices concerning surface transportation. Its options are to reduce the scope of federal highway and transit programs, to increase federal taxes on motor fuels to support the programs as currently authorized, or to obtain funding from other sources, such as the general fund. Over the longer term, increases in vehicle fuel efficiency resulting from previously enacted legislation and greater use of electric vehicles are likely to constrain motor fuel consumption, leaving in question the viability of motor fuel taxes as the principal source of surface transportation funding. The Transportation Investments Generating Economic Recovery (TIGER) grant program originated in the American Recovery and Reinvestment Act ( P.L. 111-5 ), where it was referred to as ""national infrastructure investment."" It is a discretionary grant program intended to address two criticisms of the current structure of federal transportation funding: that virtually all of the funding is distributed to state and local governments which select projects based on their individual priorities, making it difficult to fund projects that have national or regional impacts but whose costs fall largely on one or two states; and that federal transportation funding is divided according to mode of transportation, making it difficult for major projects in different modes to compete for the limited amount of discretionary funding. The TIGER program provides grants to projects of regional or national significance in various modes on a competitive basis, with recipients selected by the federal DOT. Congress has continued to support the TIGER program through the annual DOT appropriations acts. There have been four rounds of TIGER grants (from ARRA funding, and from FY2010-FY2012 annual appropriations), with the fifth round (FY2013) in process. The Administration requested $500 million for FY2014, the same amount enacted by Congress in previous years. The House bill would not provide any funding for the program for FY2014, noting that while ""the Nation is in desperate need for infrastructure investment,"" the Administration has not defined the selection criteria by which recipients are selected (the House also proposed no funding for the program in FY2013). The House bill would also rescind $237 million from the FY2013 funding. The Senate bill would provide $550 million. The EAS program seeks to preserve commercial air service to small communities, whose level of ridership makes air service unprofitable, by subsidizing the cost of that service. The costs of the program have more than doubled since FY2008, in part because route reductions by airlines have resulted in an average of six new communities being added to the program each year. Supporters of the EAS program contend that preserving airline service to small communities was a commitment Congress made when it deregulated airline service in 1978, anticipating that airlines would reduce or eliminate service to many communities that were too small to make such service economically viable. Supporters also contend that subsidizing air service to smaller communities promotes economic development in rural areas. Critics of the program note that the subsidy cost per passenger is relatively high, that many of the airports in the program have very few passengers, and that some of the airports receiving EAS subsidies are little more than an hour's drive from major airports. In addition to the annual discretionary appropriation for the program, there is a mandatory annual authorization of $100 million financed by overflight fees collected from commercial airlines by the FAA. This funding does not appear in the appropriation budget tables. The Administration requested $146 million for the EAS program in FY2014. This appears comparable to the $143 million enacted for FY2013, but would actually represent a significant increase, as the mandatory funding portion of the program was $50 million in FY2013. Thus, the total funding provided for the EAS program in FY2013 was $193 million (the $143 million appropriation plus the $50 million mandatory funding). The Administration's FY2014 request would provide a total of $246 million, including the mandatory funding. Both the House and Senate bills support the Administration request. The bills also supported the request to eliminate a requirement that airlines use, at a minimum, 15-passenger aircraft to service EAS communities, even though many of these communities typically have fewer than 15 passengers per flight. Eliminating the minimum 15-passenger aircraft requirement is seen as a way to reduce EAS program costs. The same provision has been included in recent appropriations acts. The House bill also includes a provision prohibiting EAS funding to communities whose rate of subsidy per passenger is greater than $500. The current FAA authorization act ( P.L. 112-95 , enacted February 14, 2012) included reforms intended to limit EAS program costs, some of which were included in the FY2012 appropriations act. These include limiting funding to those communities which received subsidies in FY2011 and limiting coverage to airports that average at least 10 passengers per day (unless they are more than 175 miles from the nearest hub airport). The legislation also repealed the local participation program, a pilot program established in 2003 under which some communities assumed a portion of the cost of their EAS subsidies. The budget proposed a total of $6.4 billion for a new National High Performance Rail System program with two grant programs: $2.7 billion for a Current Passenger Rail Service grant program (which would primarily fund maintenance and improvement of existing intercity passenger rail service, i.e., Amtrak) and $3.7 billion for a Rail Service Improvement grant program (which would fund new intercity passenger rail projects as well as some improvements to freight rail). Neither the House nor the Senate bill supported this realignment and funding increase. The Senate bill would provide $100 million to support improvements to existing passenger rail service and multistate planning efforts. The 111 th Congress (2009-2010) provided $10.5 billion for DOT's high speed and intercity passenger rail grant program, beginning with $8 billion in the American Recovery and Reinvestment Act of 2009. Since then, Congress has provided no additional funding for this program, and in FY2011 rescinded $400 million of the unobligated portion of the $10.5 billion already appropriated. The $10.1 billion went to the High Speed and Intercity Passenger Rail Grant Program. Despite its name, this program has provided funding mainly to develop intercity passenger rail service with top speeds of 90 or 110 miles per hour. There is only one state, California, that is actively pursuing development of a high speed rail line that would provide dedicated tracks for passenger trains traveling at speeds greater than 150 miles per hour. California has received $3.6 billion in federal funding for this project, but the total cost of constructing the line is estimated at more than $70 billion, and the financing prospects are uncertain. The Administration budget proposed to place Amtrak funding into a new Federal Railroad Administration account—Current Passenger Rail Service—for which $2.7 billion was requested. This account would fund publicly owned passenger rail asset development and maintenance, primarily Amtrak. Congress enacted $1.415 billion in capital, operating, and debt service grants for Amtrak in FY2013; after sequestration, Amtrak received $1.344 billion. Amtrak also submits a grant request to Congress each year, separate from the Administration's budget request. Amtrak requested $2.65 billion for FY2014. Most of the difference between Amtrak's request and the amount it received in FY2013 is additional funding for capital improvements and purchase of new rolling stock. The House bill would provide $950 million for Amtrak for FY2014. The Senate bill would provide $1.45 billion. The difference between the two bills lies primarily in the amount of capital funding they would provide for Amtrak. For operating assistance, the House bill would provide $350 million, the Senate bill up to $390 million; Amtrak requested $373 million. But for capital assistance grants (not including funding for service of Amtrak debts, around $200 million), the House bill would provide roughly $400 million, and Senate bill roughly $860 million; Amtrak requested roughly $2 billion. Table 5 shows the amount of funding appropriated for Amtrak grants in FY2013, requested by the Administration for FY2014, and recommended by the House and Senate Committees on Appropriations. The majority of FTA's $10 billion funding is funneled to transit agencies through several formula programs. The largest discretionary grant program is the Capital Investment Grants programs (commonly referred to as the New Starts program). This program funds new fixed-guideway transit lines and extensions to existing lines. There have been two primary components to the program, based on project cost. The New Starts component funds capital projects with total costs over $250 million which are seeking more than $75 million in federal funding; the Small Starts component funds capital projects with total costs under $250 million which are seeking less than $75 million in federal funding. In the transit program reauthorization enacted in 2012, Congress added a third component, Core Capacity. This component will fund expansions to existing fixed-guideway systems that are at or near capacity. Congress enacted appropriated $1.95 billion for the Capital Investment Grants program in FY2013; after sequestration, the program received $1.85 billion. The Capital Investment Grants program provides funding to large projects over a period of years, meaning that in each year the majority of Capital Investment Grant funding is already committed to existing projects. FTA reports that as a result of the funding reduction in FY2013, it was unable to make any new grants for the first time in 20 years, and was forced to reduce the amount paid to grantees under existing grant agreements. For FY2014, the Administration requested $1.98 billion for the program. The House bill would provide $1.82 billion; the Senate bill would $1.94 billion. FTA reports that existing grant agreements will account for $1.71 billion. The federal share for New Starts projects, by statute, can be up to 80%. Since FY2002, DOT appropriations acts have included a provision directing FTA not to sign any full funding grant agreements that provide a federal share of more than 60%. This provision is in the FY2013 House bill, but not the Senate bill. Critics of this provision note that the federal share for highway projects is typically 80% and in some cases is higher. They contend that, by providing a lower share of federal funding (and thus requiring a higher share of local funding), this provision tilts the playing field toward highway projects when communities are considering how to address transportation problems. Advocates of this provision note that the demand for New Starts funding greatly exceeds the amount that is available, so requiring a higher local match allows FTA to support more projects with the available funding. They also assert that requiring a higher local match likely encourages communities to scrutinize the costs and benefits of major proposed transit projects more closely. Table 6 presents an account-by-account summary of FY2014 appropriations proposals for HUD, compared to FY2013 enacted levels, both including and excluding the sequester reductions. Pre-sequester FY2013 enacted funding levels are taken from the Senate Appropriations Committee report for FY2014 HUD appropriations ( S.Rept. 113-45 ), which reflect the FY2013 across-the-board rescission, but not the sequestration reduction. Post-sequester funding levels are also provided, taken from estimates prepared by HUD. The Federal Housing Administration's (FHA's) single-family mortgage insurance program is financed through the Mutual Mortgage Insurance Fund (MMI Fund), which is intended to be supported through fees paid by borrowers rather than through appropriations. However, like all federal credit programs, the MMI Fund has permanent and indefinite budget authority to draw funds from Treasury without further congressional action if it ever needs additional funds to pay for higher-than-expected claims. In recent years, increased mortgage default rates and falling house prices have increased the amount of losses expected in the future on mortgages that are currently insured under the MMI Fund. This has increased the amount of funds that FHA must hold in reserve to pay for expected future losses, and reduced the amount of additional funds that FHA has available to pay for additional, unexpected increases in future losses. The FY2014 budget request includes $943 million in mandatory funding for the MMI Fund. These funds might be needed to make a required transfer of funds to the MMI Fund's primary reserve account (which holds funds to pay for expected future losses) from its secondary reserve account (which holds additional funds to pay for unanticipated future losses) in order to cover an increase in the losses that are expected in the future on the loans that are currently insured. If these funds from Treasury are needed, they would not be spent immediately; they would only be spent in the future if the existing funds held in reserve to pay for expected future losses were exhausted. FHA had until the end of FY2013 to transfer funds from the secondary reserve account to the primary reserve account. FHA did use its permanent and indefinite budget authority to draw $1.7 billion from Treasury at the end of FY2013 in order to make its required transfer of funds between reserve accounts in that year. This marked the first time that the MMI Fund has had to draw funds from Treasury for this purpose. Some localities throughout the country have begun to explore the possibility of using the power of eminent domain to purchase mortgages with negative equity at current market values (but for an amount less than what the borrower still owes on the mortgage), and then providing a new mortgage to the borrower for a lower principal amount. While some policy makers argue that this would be a way to help borrowers regain equity in their homes and stabilize local housing markets, others have argued that such a proposal undermines private contracts and could have unwelcome consequences for future mortgage lending. Several policy makers who have been concerned about this use of eminent domain have called on government agencies, such as FHA, to explain what kind of policies they might adopt if a local jurisdiction adopted such a program. The House committee report ( H.Rept. 113-136 ) expressed concern over the possible use of eminent domain to purchase negative equity mortgages, and included instructions to HUD to submit a study on the effects that this possibility could have on housing and mortgage markets. The Senate committee report ( S.Rept. 113-45 ) indicated that the committee would ""continue to monitor developments"" related to the use of eminent domain, and that it expects FHA to keep the committee informed of any policies it would pursue if an eminent domain proposal moved forward. The Community Development Fund (CDF) funds several community development-related activities, including the Community Development Block Grant (CDBG) program, the federal government's largest and most widely available source of financial assistance supporting state and local government-directed neighborhood revitalization, housing rehabilitation, and economic development activities. For FY2014, the Administration requested $3.143 billion for Community Development Fund (CDF) activities, including $2.798 billion for CDBG formula grants to states, entitlement communities, and insular areas and $70 million for Indian tribes. The Administration also requested $75 million for Regional Integration Planning Grants. In FY2013, the total amount available for CDF after application of the 0.2% across-the-board rescission and sequestration was approximately $3.135 billion. The $3.143 billion requested by the Administration is $8 million more than the $3.135 billion appropriated for FY2013, $152 million less than the amount recommended in S. 1243 as reported by the Senate Appropriations Committee, but $1.446 billion more than recommended in H.R. 2610 , as reported by the House Appropriations Committee. Regarding CDBG formula grants, S. 1243 , the Senate Appropriations Committee-passed bill, recommended $3.150 billion, which exceeds the President's request of $2.798 billion by $352 million. H.R. 2610 , as reported by the House Appropriations Committee, recommended $1.637 billion for CDBG formula grants, which is $1.161 billion less than the amount requested by the President and $1.513 billion less than the amount recommended in the Senate Appropriations Committee bill. S. 1243 , consistent with the Administration's request, included $75 million for Regional Integration Planning Grants. The House bill did not include funding for the program. The Administration's FY2014 budget request included a proposal that would limit CDBG formula grants to communities meeting a minimum grant allocation. CDBG formula grants are awarded to ""entitlement communities,"" which are defined as metropolitan cities or urban counties that meet certain population criteria. Under the proposal, which has not been formally introduced, a community qualifying for CDBG entitlement status based on the population threshold must also be eligible to receive a minimum grant amount equal to or greater than 0.125% of the amount made available to all entitlement communities in order to qualify for funds. The President's proposal for a minimum allocation would eliminate 239 communities as CDBG entitlement communities based on proposed FY2014 funding of $2.798 billion. The proposal, as outlined in the Administration's FY2014 budget justification, would be phased in over a number of years starting in FY2014 and ending in FY2018. HUD also proposed to eliminate the grandfathering provisions of the CDBG program, which extend entitlement status to communities that no longer meet the minimum population threshold. HUD estimates that an additional 57 communities would no longer meet the population threshold if the proposal to end granfathering were adopted. According to HUD, some communities that fail to meet the minimum allocation threshold would have the option of entering into a joint agreement with the urban county in which it is located. If an affected local government is not in an urban county, it would have the option of participating in the state-administered CDBG program. The report ( S.Rept. 113-45 ) accompanying the Senate Appropriations Committee-passed bill, S. 1243 , included language that rejects the Administration's proposal. Table 7 presents appropriations levels for the various related agencies funded within the Transportation, HUD, and Related Agencies appropriations bill. The Neighborhood Reinvestment Corporation, commonly known as NeighborWorks America, is a government-chartered non-profit corporation that supports a national network of local organizations that engage in a variety of community revitalization and affordable housing activities by providing those local organizations with grants, training, and technical assistance. In addition to receiving an annual appropriation for these activities, since 2008 NeighborWorks has also received additional funding to distribute to housing counseling organizations to use solely for foreclosure prevention counseling. This program is known as the National Foreclosure Mitigation Counseling Program (NFMCP), and was intended to be a temporary program to address high residential foreclosure rates in recent years. The President's FY2014 budget requested $127 million for NeighborWorks to support its traditional activities and $77 million for the NFMCP, for a total of $204 million. This is compared to a FY2013 post-sequestration funding level of $128 million for its traditional activities and nearly $76 million for the NFMCP, for a total of $204 million. The House committee-passed bill proposed $127 million for the regular NeighborWorks appropriation and $58 million for the NFMCP, for a total of $185 million. The Senate committee-passed bill proposed $138 million for the regular NeighborWorks appropriation and $77 million for the NFMCP, for a total of $215 million. The House committee-explained the proposed reduction by noting that the NFMCP funding was not intended to be permanent, and that data show that the rate of foreclosures has begun to decrease ( H.Rept. 113-136 ). The Senate committee proposed to continue funding the NFMCP at a similar level as the prior year. The Senate committee report noted that the NFMCP is not a permanent program, but indicates that it still believes that funding for the program is warranted because foreclosure rates, while falling from their peak, remain high by historical levels ( S.Rept. 113-45 ). Appendix A. FY2014 Funding Lapse FY2014 Funding Lapse and Partial Government Shutdown The federal government experienced a funding lapse beginning on October 1, 2013, which ended when the Continuing Appropriations Act ( P.L. 113-46 ) was signed into law on October 17, 2013. This funding lapse resulted in a partial ""government shutdown"" which included the suspension on non-essential government services and the furlough of federal employees who were not excepted. P.L. 113-46 provided funding through January 15, 2014; further appropriations acts would need to be enacted before then to avoid another funding gap. P.L. 113-46 also provided for all federal employees to be retroactively paid as if they had been at work for the shutdown period. All agencies typically funded by the THUD appropriations act were affected, to varying degrees. Federal agencies were required to submit contingency plans that detail the specific impacts anticipated as a result of the shutdown and which services would be continued and which employees would be exempted. The Department of Transportation's shutdown contingency plan can be accessed at http://www.dot.gov/mission/budget/dot-2014-plan-appropriation-lapse . The Department of Housing and Urban Development's shutdown contingency plan can be accessed http://portal.hud.gov/hudportal/documents/huddoc?id=HUDContingencyPlan2013.pdf . Appendix B. Composition of the THUD Funding Bill Budget Concepts Relevant for THUD The numbers cited in discussions of the THUD appropriations bills can be confusing. Different totals may be published by the committees in their tables and press releases, reported in the press or by advocates, and even presented in this report, all of which may be technically correct. This is possible because the THUD appropriations bills include different types of funding mechanisms and savings mechanisms, which can result in different figures being reported for the same programs, depending on how the numbers are presented. The following section of this report explains the different types of funding often included in the THUD appropriations bill. Most of the programs and activities in the THUD bill are funded through regular annual appropriations , also referred to as discretionary appropriations. This is the amount of new funding allocated each year by the appropriations committees. Appropriations are drawn from the general fund of the Treasury. For some accounts, the appropriations committees provide advance appropriations , or regular appropriations that are not available until the next fiscal year. In some years, Congress will also provide emergency appropriations , usually in response to disasters. These funds are sometimes provided outside of the regular appropriations acts—often in emergency supplemental spending bills—and are generally provided in addition to regular annual appropriations. Although emergency appropriations typically come from the general fund, they may not be included in the discretionary appropriation total reported for an agency. Most of the Department of Transportation's budget is derived from contract authority . Contract authority is a form of budget authority based on federal trust fund resources, in contrast to ""regular"" (or discretionary) budget authority, which is based on the resources of the general fund of the Treasury. Contract authority for DOT is generally derived from the highway trust fund and the airport and airways trust fund. Congressional appropriators are generally subject to limits on the amount of new non-emergency discretionary funding they can provide in a year. One way to stay within these limits is to appropriate no more than the allocated amount of discretionary funding in the regular annual appropriation act. Another way is to find ways to offset a higher level of discretionary funding. A portion of the cost of providing regular annual appropriations for the THUD bill is generally offset in two ways. The first is through rescissions , or cancellations of unobligated or recaptured balances from previous years' funding. The second is through offsetting receipts and collections , generally derived from fees collected by federal agencies. When the Appropriations Committee subcommittees are given their ""302(b) allocations""—that is, when the total amount that the Appropriations Committee has to spend for a fiscal year is divided among the subcommittees—that figure includes only net discretionary budget authority (non-emergency appropriations, less any offsets and rescissions); contract authority from trust funds is not included. This can lead to confusion, as the annual discretionary budget authority allocations for THUD are typically around half of the total funding provided in the bill, with the remainder made up of contract authority, offset in some way. Allocation across Agencies Once the THUD subcommittees receive their 302(b) allocations, they must decide how to allocate the funds across the different agencies within their jurisdiction. As shown in Figure B-1 , when it comes to net discretionary budget authority (appropriations, less any offsets), the majority of funding allocated by the appropriations subcommittees generally goes to HUD (about two-thirds in FY2013). However, as shown in Figure B-2 , when taking into account contract authority—which, as noted earlier, is not allocated by the appropriations committees—the total resources available to DOT are greater than the resources available to HUD. Impact of Offsets Besides the level of the 302(b) allocation, one of the most important factors in determining how much in new appropriations the THUD subcommittees will provide in each year is the amount of savings available from rescissions and offsets. Each dollar available to the subcommittee in rescissions and offsets serves to reduce the ""cost"" of providing another dollar in appropriations. As shown in Table B-1 , in FY2012, without rescissions and offsets, it would have ""cost"" the THUD Subcommittee an additional $6 billion to provide the same amount of appropriations. The amount of these ""budget savings"" can vary from year to year, meaning that the ""cost"" of providing the same level of appropriations may vary as well.","The House and Senate Transportation, Housing and Urban Development, and Related Agencies (THUD) appropriations subcommittees are charged with providing annual appropriations for the Department of Transportation (DOT), Department of Housing and Urban Development (HUD), and related agencies. The HUD budget generally accounts for the largest share of discretionary appropriations provided by the subcommittee. However, when mandatory funding is taken into account, DOT's budget is larger than HUD's budget, because it includes funding from transportation trust funds. The House and the Senate have considered FY2014 funding with significantly different assumed levels of total funding. Following from this, the House and Senate THUD bills were allocated very different levels of discretionary funding for FY2014: $44.1 billion in the House, and $54.0 billion in the Senate, a difference of 23%. Comparing funding levels proposed for FY2014 with the amounts provided in FY2013 is complex. In FY2013, Congress funded THUD agencies through a full-year continuing resolution, which provided funding generally at the same level as in FY2012, with some exceptions, and which included a 0.2% across-the-board rescission. That funding was subsequently reduced by the imposition of a sequester, which cut discretionary funding levels by around 5%. This reduced THUD funding by roughly $4.6 billion: around $1.6 billion from DOT and $3 billion from HUD. The Administration requested $76.9 billion for DOT for FY2014. Congress enacted $71.3 billion for DOT in FY2013; after the sequester reduction, DOT received around $70.6 billion. The biggest change in the Administration's request from current funding was a proposal to restructure the Federal Railroad Administration, creating two new programs that would support existing passenger rail service and fund improvements to rail infrastructure. The Administration requested $6.4 billion for those new programs, an increase of roughly $5 billion over the amount currently provided for those purposes. Neither the House nor Senate bills supported that proposal. The President's FY2014 budget request for HUD included nearly $35 billion in net new budget authority. This amount is an increase over FY2013, as Congress enacted $33.4 billion for HUD in FY2013, pre-sequester and pre-rescission. Accounting for sequestration and the across-the-board rescission, HUD was provided with about $31.4 billion in FY2013. The House bill (H.R. 2610) proposed about $28 billion in net new budget authority, while the Senate bill (S. 1243) proposed about $35 billion. Congress did not enact any final FY2014 appropriations prior to the start of the fiscal year on October 1, 2013, resulting in a funding lapse and partial government shutdown that lasted until a short-term continuing resolution was enacted on October 17, 2013. Under the terms of that CR (P.L. 113-46), federal departments and agencies, including those typically funded by the THUD appropriations bill, are funded at their FY2013 levels, post-rescission and post-sequestration, back-dated from October 1, 2013, through January 15, 2014. The CR contained several THUD-related anomalies."
"VA’s mission is to promote the health, welfare, and dignity of all veterans in recognition of their service to the nation by ensuring that they receive medical care, benefits, social support, and lasting memorials. It is the second largest federal department and, in addition to its central office located in Washington, D.C., has field offices throughout the United States, as well as the U.S. territories and the Philippines. The department’s three major components—the Veterans Benefits Administration (VBA), the Veterans Health Administration (VHA), and the National Cemetery Administration (NCA)—are primarily responsible for carrying out its mission. More specifically, VBA provides a variety of benefits to veterans and their families including disability compensation, educational opportunities, assistance with home ownership, and life insurance. VHA provides health care services, including primary care and specialized care, and it performs research and development to improve veterans’ needs. Lastly, NCA provides burial and memorial benefits to veterans and their families. Collectively, the three components rely on approximately 340,000 employees to provide services and benefits. These employees work in 167 VA medical centers, approximately 800 community-based outpatient clinics, 300 veterans centers, 56 regional offices, and 131 national and 90 state or tribal cemeteries situated throughout the nation. The use of IT is critically important to VA’s efforts to provide benefits and services to veterans. As such, the department operates and maintains an IT infrastructure that is intended to provide the backbone necessary to meet the day-to-day operational needs of its medical centers, veteran- facing systems, benefits delivery systems, memorial services, and all other IT systems supporting the department’s mission. The infrastructure is to provide for data storage, transmission, and communications requirements necessary to ensure the delivery of reliable, available, and responsive support to all VA staff offices and administration customers, as well as veterans. Toward this end, the department operates approximately 240 information systems, manages 314,000 desktop computers and 30,000 laptops, and administers nearly 460,000 network user accounts for employees and contractors to facilitate providing benefits and health care to veterans. These systems are used for the determination of benefits, benefits claims processing, patient admission to hospitals and clinics, and access to health records, among other services. For example, VBA relies on VBMS to collect and store information such as military service records, medical examinations, and treatment records from VA, DOD, and private medical service providers. IT also is widely used and critically important to supporting the department in delivering health care to veterans. VHA’s systems provide capabilities to establish and maintain electronic health records that health care providers and other clinical staff use to view patient information in inpatient, outpatient, and long-term care settings. Specifically, the Veterans Health Information Systems and Technology Architecture, known as VistA, consists of many computer applications and modules that collect, among other things, information about a veteran’s demographics, allergies, procedures, immunizations, and medical diagnoses. However, a number of VA’s systems are old. For example, our recent report on legacy systems used by federal agencies identified 2 of the department’s systems as being over 50 years old and among the 10 oldest investments and/or systems that were reported by 12 selected agencies. Personnel and Accounting Integrated Data (PAID)—This 53-year old system automates time and attendance for employees, timekeepers, payroll, and supervisors. It is written in Common Business Oriented Language (COBOL), a programming language developed in the late 1950s and early 1960s, and runs on IBM mainframes. VA plans to replace PAID with a project called Human Resources Information System Shared Service Center in 2017. Benefits Delivery Network (BDN)—This 51-year old system tracks claims filed by veterans for benefits, eligibility, and dates of death. It is a suite of COBOL mainframe applications. VA has general plans to roll the capabilities of BDN into another system, but there is no firm date associated with this transition. To address these obsolete systems that are in need of modernization or replacement, we recommended that the Secretary of Veterans Affairs direct the department’s Chief Information Officer (CIO) to identify and plan to modernize or replace legacy systems, as needed, and consistent with draft OMB guidance, including time frames, activities to be performed, and functions to be replaced or enhanced. VA concurred with our recommendation and stated that it is planning to retire PAID and BDN in 2017 and 2018, respectively. In 2014, VA issued its 6-year strategic plan, which emphasizes the department’s goal of increasing veterans’ access to benefits and services, eliminating the disability claims backlog, and ending veteran homelessness. According to the plan, the department intends to improve access to benefits and services through the use of improved technology to provide veterans with access to more effective care management. The plan also calls for VA to eliminate the disability claims backlog by fully implementing an electronic claims process that is intended to reduce processing time and increase accuracy. Further, the department has an initiative under way that provides services, such as health care, housing assistance, and job training, to end veteran homelessness. Toward this end, VA is working with other agencies, such as the Department of Health and Human Services, to implement more coordinated data entry systems to streamline and facilitate access to appropriate housing and services. VA reported spending about $3.9 billion to improve and maintain its IT resources in fiscal year 2015. Specifically, the department reported spending approximately $548 million on new systems development efforts, approximately $2.3 billion on maintaining existing systems, and approximately $1 billion on payroll and administration. For fiscal year 2016, the department received appropriations of about $4.1 billion for IT. Further, for fiscal year 2017, the department’s budget request included nearly $4.3 billion for IT. The department requested approximately $471 million for new systems development efforts, approximately $2.5 billion for maintaining existing systems, and approximately $1.3 billion for payroll and administration. In addition, in its 2017 budget submission, the department requested appropriations to make improvements in a number of areas, including: veterans’ access to health care, to include enhancing health care- related systems, standardizing immunization data, and expanding telehealth services ($186.7 million); veterans’ access to benefits by modernizing systems supporting benefits delivery, such as VBMS and the Veterans Services Network ($236.3 million); veterans’ experiences with VA by focusing on integrated service delivery and streamlined identification processes ($171.3 million); VA employees’ experiences by enhancing internal IT systems ($13 information security, including implementing strong authentication, ensuring repeatable processes and procedures, adopting modern technology, and enhancing the detection of cyber vulnerabilities and protection from cyber threats ($370.1 million). VA’s CIO has recently initiated an effort to transform the focus and functions of the Office of Information and Technology (OI&T), in response to the Secretary’s goal of achieving a more veteran-focused organization. The CIO’s transformation strategy, initiated in January 2016, calls for OI&T to focus on stabilizing and streamlining processes, mitigating weaknesses highlighted in GAO assessments, and improving outcomes by institutionalizing a new set of IT management capabilities. As part of this transformation, the CIO began transitioning the oversight and accountability of IT projects to a new project management process called the Veteran-focused Integration Process in January 2016, in an effort to streamline systems development and the delivery of new IT capabilities. The CIO also intends to establish five new functions within OI&T: The enterprise program management office is to serve as OI&T’s portfolio management and project tracking organization. The account management function is to be responsible for managing the IT needs of VA’s major components. The quality and compliance function is to be responsible for establishing policy governance and standards and ensuring adherence to them. The data management organization is expected to improve both service delivery and the veteran experience by engaging with data stewards to ensure the accuracy and security of the information collected by VA. The strategic sourcing function is to be responsible for establishing an approach to fulfilling the agency’s requirements with vendors that provide solutions to those requirements, managing vendor selection, tracking vendor performance and contract deliverables, and sharing insights on new technologies and capabilities to improve the workforce knowledge base. According to the CIO, the transformation strategy is expected to be completed by the first quarter of fiscal year 2017, although the vast majority of the plan, including establishing the five new functions, is to be executed by the end of fiscal year 2016. In February 2015, we designated VA health care as a high-risk area. Among the five broad areas contributing to our determination was the department’s IT challenges. Of particular concern was the failed modernization of a system, suspended development of another system, and the extent of system interoperability—the ability to exchange information—with DOD, which present risks to the timeliness, quality, and safety of VA health care. We have reported on the department’s failed attempts to modernize its outpatient appointment scheduling system, which is about 30 years old. Among the problems cited by VA staff responsible for scheduling appointments are that the system requires them to use commands requiring many keystrokes and that it does not allow them to view multiple screens at once. Schedulers must open and close multiple screens to check a provider’s or a clinic’s full availability when scheduling a medical appointment, which is time-consuming and can lead to errors. In addition, we reported in May 2010 that after spending an estimated $127 million over 9 years on its outpatient scheduling system project, VA had not implemented any of the planned system’s capabilities and was essentially starting over by beginning a new initiative to build or purchase another scheduling system. We also noted that VA had not developed a project plan or schedule for the new initiative, stating that it intended to do so after determining whether to build or purchase the new application. We recommended that the department take six actions to improve key systems development and acquisition processes essential to the second outpatient scheduling system effort. The department generally concurred with our recommendations, but as of May 2016, had not addressed four of the six recommendations. Further, in January 2014, we reported that the inability to electronically share data across facilities had led VA to suspend the development of a system that would have allowed it to electronically store and retrieve information about surgical implants (including tissue products) and the veterans who receive them nationwide. Having this capability would be particularly important in the event that a manufacturer or the Food and Drug Administration ordered a recall on a medical device or tissue product because of safety concerns. In the absence of a centralized system, at the time of our report, VA clinicians tracked information about implanted items using stand-alone systems or spreadsheets that were not shared across VA facilities, which made it difficult for the department to quickly determine which patients may have received an implant that was subject to a safety recall. Additionally, we reported in February 2014 that VA and DOD lacked electronic health record systems that permit the efficient electronic exchange of patient health information as military service members transition from DOD to VA health care systems. Since 1998, VA and DOD have undertaken a patchwork of initiatives intended to allow their health information systems to exchange information and increase interoperability. Among others, these have included initiatives to share viewable data in existing (legacy) systems, link and share computable data between the departments’ updated heath data repositories, and jointly develop a single integrated system. In March 2011, the secretaries of the two departments announced that they would develop a new, joint integrated electronic health record system (referred to as iEHR). This was intended to replace the departments’ separate systems with a single common system, thus sidestepping many of the challenges they had previously encountered in trying to achieve interoperability. However, in February 2013, about 2 years after initiating iEHR, the secretaries announced that the departments were abandoning plans to develop a joint system, due to concerns about the program’s cost, schedule, and ability to meet deadlines. The Interagency Program Office (IPO) reported spending about $564 million on iEHR between October 2011 and June 2013. In place of the iEHR initiative, VA stated that it would modernize VistA, while DOD planned to buy a commercially available system. The departments stated that they would ensure interoperability between these updated systems, as well as with other public and private health care providers. Our February 2014 report noted that the departments did not substantiate their claims that it would be less expensive and faster than developing a single, joint system. We have also noted that the departments’ plans to modernize their two separate systems were duplicative and stressed that their decisions should be justified by comparing the costs and schedules of alternate approaches. We therefore recommended that the departments should develop cost and schedule estimates that would include all elements of their approach (i.e., modernizing both departments’ health information systems and establishing interoperability between them) and compare them with estimates of the cost and schedule for the single-system approach. If the planned approach were projected to cost more or take longer, we recommended that they provide a rationale for pursuing such an approach. VA and DOD agreed with our prior recommendations and stated that initial comparison indicated that the current approach would be more cost effective. However, as of June 2016, the departments have not provided us with a comparison of the estimated costs of their current and previous approaches. Moreover, with respect to their assertions that separate systems could be achieved faster, both departments have developed schedules that indicate their separate modernizations are not expected to be completed until after the 2017 planned completion date for the previous single-system approach. To further highlight the department’s IT challenges, our most recent report in August 2015 on VA’s efforts to achieve electronic health record interoperability with DOD noted that the departments have engaged in several near-term efforts focused on expanding interoperability between their existing electronic health record systems. For example, the departments analyzed data related to 25 “domains” identified by the Interagency Clinical Informatics Board and mapped health data in their existing systems to standards identified by the IPO. The departments also expanded the functionality of their Joint Legacy Viewer—a tool that allows clinicians to view certain health care data from both departments in a single interface. In addition, VA and DOD have moved forward with plans to modernize their respective electronic health record systems. For its part, VA has developed a number of plans for its VistA modernization effort (known as VistA Evolution), including an interoperability plan and a road map describing functional capabilities to be deployed through fiscal year 2018. According to the road map, the first set of capabilities was to be delivered in September 2014, and was to include access to the Joint Legacy Viewer, among other things. VA’s CIO has asserted that the department has continued to improve VistA. However, the CIO also recently indicated that the department is taking a step back in reconsidering how best to meet VA’s future electronic health record system needs and has not determined whether to modernize VistA or to replace it with an off-the- shelf system. Nevertheless, a significant concern that we identified is that VA (and DOD) had not identified outcome-oriented goals and metrics that would more clearly define what they aim to achieve from their interoperability efforts and the value and benefits these efforts are intended to yield. As we have stressed in our prior work, assessing the performance of a program should include measuring its outcomes in terms of the results of products or services. In this case, such outcomes could include improvements in the quality of health care or clinician satisfaction. Establishing outcome-oriented goals and metrics is essential to determining whether a program is delivering value. In our August 2015 report, we stressed that using an effective outcome- based approach could provide VA with a more accurate picture of its progress toward achieving interoperability with DOD and the value and benefits generated. Accordingly, we recommended that the departments, working with the IPO, establish a time frame for identifying outcome- oriented metrics, define related goals as a basis for determining the extent to which the departments’ modernized electronic health record systems are achieving interoperability, and update IPO guidance accordingly. VA concurred with our recommendations and has told us that it has initiated actions in response to them. In September 2015, we reported that VBA had made progress in developing and implementing VBMS, its system that is to be used for processing disability benefit claims. Specifically, it had deployed the initial version of the system to all of its regional offices as of June 2013. Further, after initial deployment, VBA continued developing and implementing additional system functionality and enhancements to support the electronic processing of disability compensation claims. As a result, 95 percent of records related to veterans’ disability claims are electronic and reside in the system. Nevertheless, we found that VBMS was not able to fully support disability and pension claims, as well as appeals processing. Specifically, while the Under Secretary for Benefits stated in March 2013 that the development of the system was expected to be completed in 2015, implementation of functionality to fully support electronic claims processing was delayed beyond 2015. In addition, VBA had not produced a plan that identified when the system will be completed. Accordingly, holding VA management accountable for meeting a time frame and for demonstrating progress was difficult. As VA continues its efforts to complete the development and implementation of VBMS, we reported in September 2015 that three areas could benefit from increased management attention. Cost estimating: The program office did not have a reliable estimate of the cost for completing the system. Without such an estimate, VA management and the department’s stakeholders had a limited view of the system’s future resource needs, and the program risked not having sufficient funding to complete development and implementation of the system. System availability: Although VBA had improved its performance regarding system availability to users, it had not established system response time goals. Without such goals, users did not have an expectation of the system response times they could anticipate and management did not have an indication of how well the system performs relative to performance goals. System defects: While the program had actively managed system defects, a recent system release included unresolved defects that impacted system performance and users’ experiences. Continuing to deploy releases with large numbers of defects that reduce system functionality could adversely affect users’ ability to process disability claims in an efficient manner. We also found in our September 2015 report that VA had not conducted a customer satisfaction survey that would allow the department to compile data on how users view the system’s performance, and ultimately, to develop goals for improving the system. GAO’s 2014 survey of VBMS users found that a majority of them were satisfied with the system, but decision review officers were considerably less satisfied. Although the results of our survey provided VBA with data about users’ satisfaction with VBMS, the absence of user satisfaction goals limited the utility of survey results. Specifically, without having established goals to define user satisfaction, VBA did not have a basis for gauging the success of its efforts to promote satisfaction with the system, or for identifying areas where its efforts to complete development and implementation of the system might need attention. In our September 2015 report, we recommended that VA develop a plan with a time frame and a reliable cost estimate for completing VBMS, establish goals for system response time, minimize the incidence of high and medium severity system defects for future VBMS releases, assess user satisfaction, and establish satisfaction goals to promote improvement. As we stressed in our report, attention to these issues can improve VA’s efforts to effectively complete the development and implementation of VBMS. Fully addressing our recommendations, as VA agreed to do, should help the department give appropriate attention to these issues. As we reported in May 2016, VA’s expenditures for its care in the community programs, the number of veterans for whom VA has purchased care, and the number of claims processed by VHA have all grown considerably in recent years. The substantial increase in utilization of VA care in the community programs poses staffing and workload challenges for VHA, which has had ongoing difficulty processing claims from community providers in a timely manner. VHA officials and staff at three of the four claims processing locations we visited told us that limitations of the existing IT systems, including the Fee Basis Claims System (FBCS) that VHA uses for claims processing, have delayed processing and payment of claims for VA care in the community services. Officials at the sites we visited described the following limitations. VHA cannot accept medical documentation electronically. Authorizations for VA care in the community services are not always readily available in FBCS. FBCS cannot automatically adjudicate claims. System weaknesses have delayed claims payments. The officials we interviewed said that if the agency is to dramatically improve its claims processing timeliness, comprehensive and technologically advanced solutions must be developed and implemented, such as modernizing and upgrading VHA’s existing claims processing system or contracting out the claims processing function. In October 2015, VHA submitted a plan to address these issues as part of a broader effort to consolidate VA care in the community programs. The agency estimated that it would take at least 2 years to implement solutions that would fully address all of the challenges now faced by its claims processing staff and by providers of VA care in the community services. However, VHA has not yet provided to Congress or other external stakeholders a plan for modernizing its claims processing system. In particular, VHA has not provided (1) a detailed schedule for developing and implementing each aspect of its new claims processing system; (2) the estimated costs for developing and implementing each aspect of the system; and (3) performance goals, measures, and interim milestones that VHA will use to evaluate progress, hold staff accountable for achieving desired results, and report to stakeholders the agency’s progress in modernizing its claims processing system. That VHA has not yet provided a detailed plan but has stated that it expects to deploy a modernized claims processing system as early as fiscal year 2018 is cause for concern. Thus, to help provide reasonable assurance that VHA achieves its long-term goal of modernizing its claims processing system, we recommended in May 2016 that the Secretary of Veterans Affairs direct the Under Secretary for Health to ensure that the agency develops a sound written plan that includes: a detailed schedule for when VHA intends to complete development and implementation of each major aspect of its new claims processing system; the estimated costs for implementing each major aspect of the system; and the performance goals, measures, and interim milestones that VHA will use to evaluate progress, hold staff accountable for achieving desired results, and report to stakeholders the agency’s progress in modernizing its claims processing system. The department concurred with our recommendation and said that VHA plans to address the recommendation when the agency develops an implementation strategy for the future consolidation of its VA care in the community programs. In conclusion, effective IT management is critical to the performance of VA’s mission. The department faces challenges in key areas, including the development of new systems, modernization of existing systems, and increasing interoperability with DOD. While we recognize that the transformation of VA’s IT organization is intended, among other things, to mitigate the IT weaknesses we have identified, sustained management attention and organizational commitment will be essential to ensuring that the transformation is successful and that the weaknesses are fully addressed. Chairman Isakson, Ranking Member Blumenthal, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have. If you or your staff have any questions about this testimony, please contact Valerie C. Melvin at (202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony statement. GAO staff who made key contributions to this statement are Mark T. Bird (Assistant Director), Jennifer Stavros-Turner (Analyst in Charge), Kara Epperson, Rebecca Eyler, and Jacqueline Mai. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.","VA relies on IT to meet its mission and effectively serve the nation's veterans. Over the past several years, the department has expended billions of dollars to manage and modernize its information systems. However, VA has experienced challenges in managing its IT, raising questions about the effectiveness of its IT operations. GAO has previously reported on a number of the department's IT initiatives. This statement summarizes results from key GAO reports issued between 2010 and 2014 highlighting IT challenges that have contributed to GAO's designation of VA health care as a high risk area. It also describes additional challenges that GAO more recently identified in 2015 and 2016 that are related to increasing the electronic exchange of VA's health records with those of DOD, development and use of VBMS, and the department's modernization of its health care claims processing system. In February 2015, GAO designated Veterans Affairs (VA) health care as a high-risk area based on its concerns about the department's ability to ensure the quality and safety of veterans' health care in five broad areas, one of which was information technology (IT) challenges. Of particular concern at that time was the failed modernization of an outpatient appointment scheduling system, suspended development of a system that was to electronically store and retrieve information about surgical implants, and the extent of system interoperability—the ability to exchange information—with the Department of Defense (DOD), which present risks to the timeliness, quality, and safety of VA health care. Subsequent to the designation of VA health care as high risk, GAO completed evaluations that identified additional IT management challenges at VA. In August 2015, GAO reported on VA's efforts to achieve electronic health record interoperability with DOD and noted that (1) the two departments had engaged in several near-term efforts to expand interoperability and (2) VA and DOD had moved forward with plans to separately modernize their electronic health record systems. However, of significant concern was that VA (and DOD) had not identified outcome-oriented goals and metrics that would clearly define what it aims to achieve from its efforts. GAO recommended that VA develop goals and metrics, among other things. VA concurred with the recommendations and stated that it has initiated actions in response. VA had made progress in developing and implementing its Veterans Benefits Management System (VBMS), with deployment of the initial version of the system. However, in September 2015, GAO reported that the development and implementation of the system was ongoing and noted three areas that could benefit from increased management attention: cost estimating, system availability, and system defects. The report also noted that VA had neither conducted a customer satisfaction survey nor developed goals for improving the system. GAO recommended that VA develop a plan with a time frame and a reliable cost estimate for completing VBMS, establish goals for system response time, minimize the incidences of high and medium severity system defects for future VBMS releases, assess user satisfaction, and establish satisfaction goals to promote improvement. VA agreed with the recommendations and noted steps it was taking to address them. Due to recent increases in utilization of VA care in the community, the department has had difficulty processing claims in a timely manner. In May 2016, GAO reported that VA officials and claims processing staff indicated that IT limitations, manual processes, and staffing challenges had delayed claims processing. The department had implemented interim measures to address some of the system's challenges, but did not expect to deploy solutions to address all challenges, including those related to IT, until fiscal year 2018 or later. Further, VA did not have a sound plan for modernizing its claims processing system, which GAO recommended it develop. The department concurred with this recommendation and stated that it intended to address the recommendation through the planned consolidation of its care in the community programs. GAO has made numerous recommendations to VA to improve the modernization of its IT systems. Among other things, GAO has recommended that VA address challenges associated with its efforts to modernize its electronic health record system to increase interoperability with DOD, develop goals and metrics as a basis for determining the extent to which VA's and DOD's modernized electronic health records systems are achieving interoperability, address shortcomings with VBMS planning and implementation, and develop a sound written plan for deploying its modernized claims processing system. VA has concurred with these recommendations and has some actions ongoing."
"The Foreign Intelligence Surveillance Act (FISA) provides a statutory framework by which government agencies may, when gathering foreign intelligence for an investigation, obtain authorization to conduct electronic surveillance or physical searches, utilize pen registers and trap and trace devices, or access specified business records and other tangible things. Authorization for such activities is typically obtained via a court order from the Foreign Intelligence Surveillance Court (FISC), a specialized court created to act as a neutral judicial decisionmaker in the context of FISA. Shortly after the 9/11 terrorist attacks, Congress enacted the USA PATRIOT Act, in part, to ""provid[e] enhanced investigative tools"" to ""assist in the prevention of future terrorist activities and the preliminary acts and crimes which further such activities."" That act and subsequent measures amended FISA to enable the government to obtain information in a greater number of circumstances. At the time of enactment, these expanded authorities prompted concerns regarding the appropriate balance between national security interests and civil liberties. Perhaps in response to such concerns, Congress established sunset provisions which apply to three of the most controversial amendments to FISA: Section 6001(a) of the Intelligence Reform and Terrorism Prevention Act (IRTPA), also known as the ""lone wolf"" provision, which simplifies the evidentiary showing needed to obtain a FISA court order to target non-U.S. persons who engage in international terrorism or activities in preparation therefor, specifically by authorizing such orders in the absence of a proven link between a targeted individual and a foreign power; Section 206 of the USA PATRIOT Act, which permits multipoint, or ""roving,"" wiretaps (i.e., wiretaps which may follow a target even when he or she changes phones) by adding flexibility to the manner in which the subject of a FISA court order is specified; and Section 215 of the USA PATRIOT Act, which authorizes orders compelling a person to produce ""any tangible thing"" that is ""relevant"" to an authorized foreign intelligence, international terrorism, or counter-espionage investigation. These provisions were originally set to expire on December 31, 2005, but were extended multiple times, with slight modifications, through June 1, 2015. In summer 2013, media began reporting on several foreign intelligence activities conducted by the National Security Agency (NSA), including the bulk collection of telephone metadata under Section 215. The controversy surrounding Section 215 complicated efforts to reauthorize all three of the expiring provisions, and they eventually expired on June 1, 2015. One day later, Congress enacted the USA FREEDOM Act, which placed new limitations on the scope of the government's foreign intelligence activities, while simultaneously extending the expired provisions through December 15, 2019. FISA, enacted in 1978, provides a statutory framework which governs governmental authority to conduct, as part of an investigation to gather foreign intelligence information, electronic surveillance and other activities to which the Fourth Amendment warrant requirement would apply if they were conducted as part of a domestic criminal investigation. Its statutory requirements arguably provide a minimum standard that must be met before foreign intelligence searches or surveillance may be conducted by the government. The three amendments to FISA covered by this report are the ""lone wolf,"" ""roving wiretap,"" and Section 215 provisions. Although the amendments are often discussed as a group and may implicate similar questions regarding what legal standards govern the FISC's determinations, unique historical and legal issues apply to each amendment. As a result of the leaks by Edward Snowden, Section 215 has come to be the most controversial provision in recent years, as well as the provision with the most extensive legislative and litigation history. Section 215 of the USA PATRIOT Act broadened federal officials' access to materials in investigations to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities. It both enlarged the scope of materials that may be sought and lowered the standard for a court to issue an order compelling their production. Prior to the USA PATRIOT Act, FISA authorized the production of only four types of business records in foreign intelligence or international terrorism investigations. These were records from common carriers, public accommodation facilities, storage facilities, and vehicle rental facilities. The USA PATRIOT Act expanded the scope of records to authorize the production of ""any tangible things."" The scope of documents potentially covered by Section 215 was not changed by the USA FREEDOM Act. Section 215 of the USA PATRIOT Act also modified the evidentiary standard the FISC would apply before issuing an order compelling the production of documents. Prior to enactment of Section 215, an applicant had to have ""specific and articulable facts giving reason to believe that the person to whom the records pertain is a foreign power or an agent of a foreign power."" In contrast, under Section 215 as originally enacted, the applicant only needed to ""specify that the records concerned [were] sought for a [foreign intelligence, international terrorism, or espionage investigation.]"" In 2005, Congress further amended FISA procedures for obtaining business records. The applicable standard was changed to require ""a statement of facts showing that there are reasonable grounds to believe that the tangible things sought are relevant to a [foreign intelligence, international terrorism, or espionage investigation.]"" Under this standard, records are presumptively relevant if they pertain to: a foreign power or an agent of a foreign power; the activities of a suspected agent of a foreign power who is the subject of such authorized investigation; or an individual in contact with, or known to, a suspected agent of a foreign power who is the subject of such authorized investigation. Beginning in 2006, the government began to use orders of the FISC issued pursuant to Section 215 to collect large amounts of domestic telephone metadata in bulk with the goal of helping to detect and identify individuals who were part of terrorist networks. This program is frequently described as collecting telephone metadata ""in bulk"" to distinguish it from the narrower collection of metadata pertaining to an identified individual or group of individuals that is commonplace in both law enforcement and national security investigations. Following the public disclosure of these bulk intelligence activities, Section 215 was amended by the USA FREEDOM Act to additionally require the use of a ""specific selection term"" (SST) to ""limit collection to the greatest extent reasonably practicable."" An SST was defined as ""a term that specifically identifies a person, account, address, or personal device, or any other specific identifier."" These amendments also expressly prohibited orders under Section 215 that are limited only by broad geographic terms (such as a state or zip code) or named communications service providers (such as Verizon or AT&T). A slightly relaxed standard can be used under the amended Section 215 to obtain telephone metadata on an ongoing basis, but only for international terrorism investigations. Whereas a standard order under Section 215 would produce only those records that are responsive to an approved SST, an order seeking telephone records for an international terrorism investigation can also be used to produce a second set of telephone records that are not themselves responsive to an approved SST, but that are connected to one of the records that was directly produced by an SST. For example, if Alice called Bob, and Bob also called Charles, then a single Section 215 order that used Alice's phone number as an SST could obtain records of the call to Bob as well as records of the call from Bob to Charles. In order to take advantage of this increased scope of production, the government would need to demonstrate to the FISC that there was a ""reasonable articulable suspicion"" that the SST is associated with a foreign power, or an agent of a foreign power, who was engaged in international terrorism. Orders issued under Section 215, as amended, are accompanied by nondisclosure orders prohibiting the recipients from disclosing that the FBI has sought or obtained any tangible things pursuant to a FISA order. However, the recipient may discuss the order with other persons as necessary to comply with the order, with an attorney to obtain legal advice or assistance, or with other persons as permitted by the FBI. The recipient must identify persons to whom disclosure has been made, or is intended to be made, if the FBI requests, except that attorneys with whom the recipient has consulted do not need to be identified. The USA PATRIOT Improvement and Reauthorization Act of 2005 provided procedures by which a recipient of a Section 215 order may challenge orders compelling the production of business records. Once a petition for review is submitted by a recipient, a FISC judge must determine whether the petition is frivolous within 72 hours. If the petition is frivolous, it must be denied and the order affirmed. The order may be modified or set aside if it does not meet the requirements of FISA or is otherwise unlawful. Appeals by either party may be heard by the Foreign Intelligence Court of Review and the Supreme Court. Judicial review of nondisclosure orders operates under a similar procedure, but such orders are not reviewable for one year after they are initially issued. If the petition is not determined to be frivolous, a nondisclosure order may be set aside if there is no reason to believe that disclosure may endanger the national security of the United States, interfere with a criminal, counterterrorism, or counterintelligence investigation, interfere with diplomatic relations, or endanger the life or physical safety of any person. A petition to set aside a nondisclosure order may be defeated if the government certifies that disclosure would endanger the national security or interfere with diplomatic relations. Absent any finding of bad faith, such a certification is to be treated as conclusive by the FISC. If a petition is denied, either due to a certification described above, frivolity, or otherwise, the petitioner may not challenge the nondisclosure order for another year. Appeals by either party may be heard by the Foreign Intelligence Court of Review and the Supreme Court. Commonly referred to as the ""lone wolf"" provision, Section 6001(a) of IRTPA simplifies the evidentiary standard used to determine whether an individual, other than a citizen or a permanent resident of the United States, who engages in international terrorism, may be the target of a FISA court order. It does not modify other standards used to determine the secondary question of whether the electronic surveillance or a physical search of the subject of a court order is justified in a specific situation. The historical impetus for the ""lone wolf"" provision involved Zacarias Moussaoui, one of the individuals believed to be responsible for the 9/11 terrorist attacks. During the examination of the events leading up to the attacks, it was reported that investigations regarding Moussaoui's involvement were hampered by limitations in FISA authorities. Specifically, FBI agents investigating Moussaoui suspected that he had planned a terrorist attack involving piloting commercial airliners, and had detained him in August 2001 on an immigration charge. The FBI agents then sought a court order under FISA to examine the contents of Moussaoui's laptop computer. However, the agency apparently concluded that it had insufficient information at that time to demonstrate that Moussaoui was an agent of a foreign power as then required by FISA. Prior to its amendment, FISA authorized the FISC to approve, among other things, physical searches of a laptop only if probable cause existed to believe the laptop was owned or used by a foreign power or its agent. The definition of a ""foreign power"" included ""groups engaged in international terrorism or activities in preparation therefor."" Individuals involved in international terrorism for or on behalf of those groups were considered ""agents of a foreign power."" In the weeks leading up to the attacks, it appears that the FBI encountered an actual or perceived insufficiency of information demonstrating probable cause to believe that Moussaoui was acting for or on behalf of an identifiable group engaged in international terrorism. Following these revelations, a number of legislative proposals were put forth to amend the definition of ""agents of a foreign power"" under FISA so that individuals engaged in international terrorism need not be linked to a specific foreign power. One such amendment was ultimately enacted with passage of the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA). Section 6001 of the legislation, known as the ""lone wolf"" provision, provides that persons, other than citizens or permanent residents of the United States, who are engaged in international terrorism are presumptively considered to be agents of a foreign power. The provision obviates any need to provide an evidentiary connection between an individual and a foreign government or terrorist group. Critics of the ""lone wolf"" provision argued that the laptop in the Moussaoui case could have been lawfully searched under FISA or the laws governing generic criminal warrants. Critics also expressed concern that the simplified ""lone wolf"" standard would lead to ""FISA serving as a substitute for some of our most important criminal laws."" Proponents of the provision noted that the increased self-organization among terror networks has made proving connections to identifiable groups more difficult. Thus, a ""lone wolf"" provision is necessary to combat terrorists who use a modern organizational structure or who are self-radicalized. Section 206 of the USA PATRIOT Act amended FISA to permit multipoint, or ""roving,"" wiretaps by adding flexibility to the degree of specificity with which the location or facility subject to electronic surveillance under FISA must be identified. It is often colloquially described as allowing FISA wiretaps to target persons rather than places. Prior to enactment of Section 206, the scope of electronic surveillance authorized by a court order was limited in two ways. First, the location or facility that was the subject of surveillance had to be identified. Second, only identifiable third parties could be directed by the government to facilitate electronic surveillance. Conducting electronic surveillance frequently requires the assistance of telecommunications providers, landlords, or other third parties. Furthermore, telecommunications providers are generally prohibited from assisting in electronic surveillance for foreign intelligence purposes, except as authorized by FISA. In cases where the location or facility was unknown, the identity of the person needed to assist the government could not be specified in the order. Therefore, limiting the class of persons that could be directed to assist the government by a FISA court order effectively limited the reach to known and identifiable locations. Section 206 of the USA PATRIOT Act amended Section 105(c)(2)(B) of FISA. It authorizes FISA orders to direct ""other persons"" to assist with electronic surveillance if ""the Court finds, based on specific facts provided in the application, that the actions of the target ... may have the effect of thwarting the identification of a specified person."" In a technical amendment later that year, the requirement that the order specify the location of the surveillance was also changed so that this requirement only applies if the facilities or places are known. These modifications have the effect of permitting FISA orders to direct unspecified individuals to assist the government in performing electronic surveillance, thus permitting court orders to authorize surveillance of places or locations that are unknown at the time the order is issued. This section was further amended by the USA PATRIOT Improvement and Reauthorization Act of 2005 to require that the FISC be notified within 10 days after ""surveillance begins to be directed at any new facility or place."" In addition, the FISC must be told the nature and location of each new facility or place, the facts and circumstances relied upon to justify the new surveillance, a statement of any proposed minimization procedures (i.e., rules to limit the government's acquisition and dissemination of information involving United States citizens) that differ from those contained in the original application or order, and the total number of facilities or places subject to surveillance under the authority of the present order. The Fourth Amendment imposes specific requirements upon the issuance of warrants authorizing searches of ""persons, houses, papers, and effects."" One of the requirements, referred to as the particularity requirement, states that warrants shall ""particularly describ[e] the place to be searched."" Under FISA, roving wiretaps are not required to identify the location that may be subject to surveillance. Therefore, some may argue that roving wiretaps do not comport with the particularity requirement of the Fourth Amendment. It is not clear that the Fourth Amendment would require that searches for foreign intelligence information be supported by a warrant, but prior legal challenges to similar provisions of Title III of the Omnibus Crime Control and Safe Streets Act may be instructive in the event that challenges to Section 206 are brought alleging violations of the particularity requirement of the Fourth Amendment. Similar roving wiretaps have been permitted under Title III since 1986 in cases where the target of the surveillance takes actions to thwart such surveillance. The procedures under Title III are similar to those currently used under FISA, but two significant differences exist. First, a roving wiretap under Title III must definitively identify the target of the surveillance. Fixed wiretaps under Title III and all wiretaps under FISA need only identify the target if the target's identity is known. FISA permits roving wiretaps via court orders that only provide a specific description of the target. Second, Title III requires that the surveilled individuals be notified of the surveillance, generally 90 days after surveillance terminates. FISA contains no similar notification provision. In United States v. Petti , the U.S. Court of Appeals for the Ninth Circuit was presented with a challenge to a roving wiretap under Title III alleging that roving wiretaps do not satisfy the particularity requirement of the Fourth Amendment. The court initially noted that the test for determining the sufficiency of the warrant description is whether the place to be searched is described with sufficient particularity to enable the executing officer to locate and identify the premises with reasonable effort, and whether there is any reasonable probability that another premise might be mistakenly searched. Applying this test, the Ninth Circuit held that roving wiretaps under Title III satisfied the particularity clause of the Fourth Amendment. The court in this case relied upon the fact that targets of roving wiretaps had to be identified and that they were only available where the target's actions indicated an intent to thwart electronic surveillance. Critics of roving wiretaps under FISA may argue that Section 206 increases the likelihood that innocent conversations will be the subject of electronic surveillance. They may further argue that the threat of these accidental searches of innocent persons is precisely the type of injury sought to be prevented by the particularity clause of the Fourth Amendment. Such a threat may be particularly acute in this case given the fact that there is no requirement under FISA that the target of a roving wiretap be identified, although the target must be specifically described. As noted above, these three FISA amendments have been extended until December 15, 2019. If that date were to arrive without any extension, the amended FISA authorities would revert to their text as it appeared before the enactment of the USA PATRIOT Act. For example, in the context of roving wiretaps, Section 105(c)(2) of FISA would read as it did on October 25, 2001, eliminating the authority for FISA court orders to direct other unspecified persons to assist with electronic surveillance. Likewise, regarding FISA orders for the production of documents, Sections 501 and 502 of FISA would read as they did on October 25, 2001, restricting the types of business records that are subject to FISA and reinstating the requirement for ""specific and articulable facts giving reason to believe that the person to whom the records pertain is a foreign power or an agent of a foreign power."" However, a grandfather clause applies to each of the three provisions. The grandfather clauses authorize the continued effect of the amendments with respect to investigations that began, or potential offenses that took place, before the provisions' sunset date. Thus, for example, if a non-U.S. person were engaged in international terrorism before the sunset date, he would still be considered a ""lone wolf"" for FISA court orders sought after the provision has expired. Similarly, if an individual is engaged in international terrorism before that date, he may be the target of a roving wiretap under FISA even if authority for new roving wiretaps expired.","Two amendments to the Foreign Intelligence Surveillance Act (FISA) were enacted as part of the USA PATRIOT Act. Section 206 of the USA PATRIOT Act amended FISA to permit multipoint, or ""roving,"" wiretaps by adding flexibility to the degree of specificity with which the location or facility subject to electronic surveillance under FISA must be identified. Section 215 enlarged the scope of materials that could be sought under FISA to include ""any tangible thing."" It also lowered the standard required before a court order may be issued to compel their production. A third amendment to FISA was enacted in 2004, as part of the Intelligence Reform and Terrorism Prevention Act (IRTPA). Section 6001(a) of the IRTPA changed the rules regarding the types of individuals who may be targets of FISA-authorized searches. Also known as the ""lone wolf"" provision, it permits surveillance of non-U.S. persons engaged in international terrorism without requiring evidence linking those persons to an identifiable foreign power or terrorist organization. In summer 2013, media began reporting on several foreign intelligence activities conducted by the National Security Agency (NSA), including the bulk collection of telephone metadata under Section 215 of the USA PATRIOT Act. After a one-day lapse in the expiring authorities, Congress enacted the USA FREEDOM Act, which placed new limitations on the scope of the government's foreign intelligence activities, while simultaneously extending the expired provisions through December 15, 2019. Although these provisions are set to sunset at the end of 2019, grandfather clauses permit them to remain effective with respect to investigations that began, or potential offenses that took place, before the sunset date."
"An improper payment is any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. This definition includes any payment to an ineligible recipient, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except where authorized by law), and any payment that does not account for credit for applicable discounts. Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111- 204, § 2(e), 124 Stat. 2224, 2227 (2010) (codified at 31 U.S.C. § 3321 note). Office of Management and Budget guidance also instructs agencies to report as improper payments any payments for which insufficient or no documentation was found. the greatest financial risk to Medicare (see Table 1). However, the contractors have varying roles and levels of CMS direction and oversight in identifying claims for review. MACs process and pay claims and conduct prepayment and postpayment reviews for their established geographic regions. As of January, 2016, 12 MACs—referred to as A/B MACs—processed and reviewed Medicare Part A and Part B claims, and 4 MACs—referred to as DME MACs— processed and reviewed DME claims. MACs are responsible for identifying both high-risk providers and services for claim reviews, and CMS has generally given the MACs broad discretion to identify claims for review. Each individual MAC is responsible for developing a claim review strategy to target high-risk claims.20 In their role of processing and paying claims, the MACs also take action based on claim review findings. The MACs deny payment on claims when they or other contractors identify payment errors during prepayment claim reviews. When MACs or other claim review contractors identify overpayments using postpayment reviews, the MACs seek to recover the overpayment by sending providers what is referred to as a demand letter. In the event of underpayments, the MACs return the balance to the provider in a future reimbursement. For additional information on the MAC roles and responsibilities, see GAO, Medicare Administrative Contractors: CMS Should Consider Whether Alternative Approaches Could Enhance Contractor Performance, GAO-15-372 (Washington, D.C.: Apr. 2015). Congress established per beneficiary Medicare limits for therapy services, which took effect in 1999. However, Congress imposed temporary moratoria on the limits several times until 2006, when it required CMS to implement an exceptions process in which exceptions to the limits are allowed for reasonable and necessary therapy services. Starting in 2012, the exceptions process has applied a claim review requirement on claims after a beneficiary’s annual incurred expenses reach certain thresholds. For additional information on the therapy service limits, see GAO, Medicare Outpatient Therapy: Implementation of the 2012 Manual Medical Review Process, GAO-13-613 (Washington, D.C.: July, 2013). As required by law, the RAs are paid on a contingent basis from recovered overpayments. The contingency fees generally range from 9.0 percent to 17.5 percent, and vary by RA region, the type of service reviewed, and the way in which the provider remits the overpayment. Because the RAs are paid from recovered funds rather than appropriated funds, the use of RAs expands CMS’s capacity for claim reviews without placing additional demands on the agency’s budget. The RAs are allowed to target high-dollar claims that they believe have a high risk of improper payments, though they are not allowed to identify claims for review solely because they are high-dollar claims. The RAs are also subject to limits that only allow them to review a certain percentage or number of a given provider’s claims. The RAs initially identified high rates of error for short inpatient hospital stays and targeted those claims for review. Certain hospital services, particularly services that require short hospital stays, can be provided in both an inpatient and outpatient setting, though inpatient services generally have higher Medicare reimbursement amounts. The RAs found that many inpatient services should have been provided on an outpatient basis and denied many claims for having been rendered in a medically unnecessary setting.23 Medicare has a process that allows for the appeal of claim denials, and hospitals appealed many of the short inpatient stay claims denied by RAs. Hospital appeals of RA claim denials helped contribute to a significant backlog in the Medicare appeals system. determining whether RA prepayment reviews could prevent fraud and the resulting improper payments and, in turn, lower the FFS improper payment rate. From 2012 through 2014, operating under this waiver authority, CMS conducted the RA Prepayment Review Demonstration in 11 states. In these states, CMS directed the RAs to conduct prepayment claim reviews for specific inpatient hospital services. Additionally, the RAs conducted prepayment reviews of therapy claims that exceeded the annual per beneficiary limit in the 11 demonstration states. Under the demonstration, instead of being paid a contingency fee based on recovered overpayments, the RAs were paid contingency fees based on claim denial amounts. In anticipation of awarding new RA contracts, CMS began limiting the number of RA claim reviews and discontinued the RA Prepayment Review Demonstration in 2014. CMS required the RAs to stop sending requests for medical documentation to providers in February 2014, so that the RAs could complete all outstanding claim reviews by the end of their contracts. However, in June 2015, CMS cancelled the procurement for the next round of RA contracts, which had been delayed because of bid protests. Instead, CMS modified the existing RA contracts to allow the RAs to continue claim review activities through July 31, 2016. In November 2015, CMS issued new requests for proposals for the next round of RA contracts and, according to CMS officials, plans to award them in 2016. The SMRC conducts nationwide postpayment claim reviews as part of CMS-directed studies aimed at lowering improper payment rates. The SMRC studies often focus on issues related to specific services at high risk for improper payments, and provide CMS with information on the prevalence of the issues and recommendations on how to address them. Although CMS directs the types of services and improper payment issues that the SMRC examines, the SMRC identifies the specific claims that are reviewed as part of the studies. CMS’s CERT program annually estimates the amount and rate of improper payments in the Medicare FFS program, and CMS uses the CERT results, in part, to direct and oversee the work of claim review contractors, including the MACs, RAs, and SMRC. CMS’s CERT program develops its estimates by using a contractor to conduct postpayment claim reviews on a statistically valid random sample of claims. The CERT program develops the estimates as part of CMS’s efforts to comply with the Improper Payments Information Act, which requires agencies to annually identify programs susceptible to significant improper payments, estimate amounts improperly paid, and report these estimates and actions taken to reduce them.25 In addition, the CERT program estimates improper payment rates specific to Medicare service and provider types and identifies services that may be particularly at risk for improper payments. See Improper Payments Information Act of 2002 (IPIA), Pub. L. No. 107-300, 116 Stat. 2350 (2002) (codified, as amended, at 31 U.S.C. § 3321 note). The IPIA was subsequently amended by the Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204, 124 Stat. 2224 (2010), and the Improper Payments Elimination and Recovery Improvement Act of 2012, Pub. L. No. 112-248, 126 Stat. 2390 (2013). We have also reported that prepayment controls are generally more cost-effective than postpayment controls and help avoid costs associated with the “pay and chase” process. See GAO, A Framework for Managing Fraud Risks in Federal Programs, GAO-15-593SP (Washington, D.C.: July 28, 2015). CMS is not always able to collect overpayments identified through postpayment reviews. A 2013 HHS OIG study found that each year over the period from fiscal year 2007 to fiscal year 2010, approximately 6 to 9 percent of all overpayments identified by claim review contractors were deemed not collectible.27 Postpayment reviews require more administrative resources compared to prepayment reviews. Once overpayments are identified on a postpayment basis, CMS requires contractors to take timely efforts to collect the overpayments. HHS OIG reported that the process for recovering overpayments can involve creating and managing accounts receivables for the overpayments, tracking provider invoices and payments, and managing extended repayment plans for certain providers. In contrast, contractors do not need to take these steps, and expend the associated resources, for prepayment reviews, which deny claims before overpayments are made. Key stakeholders we interviewed identified few significant differences in conducting and responding to prepayment and postpayment reviews. Specifically, CMS, MAC, and RA officials stated that prepayment and postpayment review activities are generally conducted by claim review contractors in similar ways. Officials we interviewed from health care provider organizations told us that providers generally respond to prepayment and postpayment reviews similarly, as both types of review occur after a service has been rendered, and involve similar medical documentation requirements and appeal rights. These statistics are based on CMS summary financial data, and the currently not collectable classification for overpayments can vary based on when overpayments are identified and demanded, and if overpayments are under appeal. See Department of Health and Human Services, Office of Inspector General, Medicare’s Currently Not Collectible Overpayments, OEI-03-11-00670 (Washington, D.C.: June 2013). hold discussions with the RAs for postpayment review findings, and CMS recently implemented the option for SMRC findings as well. The discussions offer providers the opportunity to give additional information before payment determinations are made and before providers potentially enter the Medicare claims appeals process. Several of the provider organizations we interviewed found the RA discussions helpful, stating that some providers have been able to get RA overpayment determinations reversed. Such discussions are not available for RA prepayment claim reviews or for MAC reviews. CMS officials stated that the discussions are not feasible for prepayment claim reviews due to timing difficulties, as the MACs and RAs are required to make payment determinations within 30 days after receiving providers’ medical records. Second, providers stated that they may face certain cash flow burdens with prepayment claim reviews that they do not face with postpayment reviews due to how the claims are treated in the Medicare appeals process.29 When appealing postpayment review overpayment determinations, providers keep their Medicare payment through the first two levels of appeal before CMS recovers the identified overpayment. If the overpayment determinations are overturned at a higher appeal level, CMS must pay back the recovered amount with interest accrued for the period in which the amount was recouped. In contrast, providers do not receive payment for claims denied on a prepayment basis and, if prepayment denials are overturned on appeal, providers do not receive interest on the payments for the duration the payments were held by CMS. The Medicare FFS appeals process consists of five levels of review that include CMS contractors, staff divisions within HHS, and ultimately, the federal judicial system, allowing appellants who are dissatisfied with the decision at one level to appeal to the next level. claims deemed most critical by each MAC to address and a description of plans to address them. During the same time period, the MACs conducted approximately 76,000 postpayment claim reviews, though some MACs did not conduct any postpayment claims reviews. Prior to the establishment of the national RA program, the MACs conducted a greater proportion of postpayment reviews. However, the MACs have shifted nearly all of their focus to conducting prepayment reviews, as responsibility for conducting postpayment reviews has generally shifted to the RAs. According to CMS officials, the MACs currently use postpayment reviews to analyze billing patterns to inform other review activities, including future prepayment reviews, and to help determine where to conduct educational outreach for specific providers. CMS has also encouraged the MACs to use postpayment reviews to perform extrapolation, a process in which the MACs estimate an overpayment amount for a large number of claims based on a sample of claim reviews. According to CMS officials, extrapolation is not used often but is an effective strategy for providers that submit large volumes of low-dollar claims with high improper payment rates. The SMRC is focused on examining Medicare billing and payment issues at the direction of CMS, and all of its approximately 178,000 reviews in 2013 and 2014 were postpayment reviews. The SMRC uses postpayment reviews because its studies involve developing sampling methodologies to examine issues with specific services or specific providers. For example, in 2013, CMS directed the SMRC to complete a national review of home health agencies, which involved reviewing five claims from every home health agency in the country. CMS had the SMRC conduct this study to examine issues arising from a new coverage requirement that raised the improper payment rate for home health services.30 Additionally, a number of SMRC studies used postpayment sampling to perform extrapolation to determine overpayment amounts for certain providers. The RAs generally conducted postpayment reviews, though they conducted prepayment reviews under the Prepayment Review Demonstration. The RAs conducted approximately 85 percent of their claim reviews on a postpayment basis in 2013 and 2014—accounting for approximately 1.7 million postpayment claim reviews—with the other 15 percent being prepayment reviews conducted under the demonstration. CMS is no longer using the RAs to conduct prepayment reviews because the demonstration ended. Outside of a demonstration, CMS must pay the RAs from recovered overpayments, which effectively limits the RAs to postpayment reviews. CMS and RA officials who we interviewed generally considered the demonstration a success, and CMS officials told us that they included prepayment reviews as a potential work activity in the requests for proposals for the next round of RA contracts, in the event that the agency is given the authority to pay RAs on a different basis. However, the President’s fiscal year budget proposals for 2015 through 2017 did not contain any legislative proposals that CMS be provided such authority. Obtaining the authority to allow the RAs to conduct prepayment reviews would align with CMS’s strategy to pay claims properly the first time. In not seeking the authority, CMS may be missing an opportunity to reduce the amount of uncollectable overpayments from RA reviews and save administrative resources associated with recovering overpayments. The rate of improper payments for home health services rose from 6.1 percent in fiscal year 2012 to 17.3 percent in fiscal year 2013and to 51.4 percent in fiscal year 2014. According to CMS, the increase in improper payments occurred primarily because of CMS’s implementation of a requirement that home health agencies have documentation showing that referring providers conducted a face-to-face examination of beneficiaries before certifying them as eligible for home health services. Our analysis of RA claim review data shows that the RAs focused on reviewing inpatient claims in 2013 and 2014, though this focus was not consistent with the degree to which inpatient services constituted improper payments, or with CMS’s expectation that the RAs review all claim types. In 2013, a significant majority—78 percent—of all RA claim reviews were for inpatient claims, and in 2014, nearly half—47 percent— of all RA claim reviews were for inpatient claims (see Table 3). For RA postpayment reviews specifically, which excludes reviews conducted as part of the RA Prepayment Review Demonstration, 87 percent of RA reviews were for inpatient claims in 2013, and 64 percent were for inpatient claims in 2014. Inpatient services had high amounts of improper payments relative to other types of services—with over $8 billion in improper payments in fiscal year 2012 and over $10 billion in fiscal year 2013—which reflect the costs of providing these services. However, inpatient services did not have a high improper payment rate relative to other services and constituted about 30 percent of overall Medicare FFS improper payments in both years. As will be discussed, the proportion of inpatient reviews in 2014 would likely have been higher if CMS—first under its own authority and then as required by law—had not prohibited the RAs from conducting reviews of claims for short inpatient hospital stays at the beginning of fiscal year 2014. The RAs conducted about 1 million fewer claim reviews in 2014 compared to 2013, and nearly all of the decrease can be attributed to fewer reviews of inpatient claims. In general, the RAs have discretion to select the claims they review, and their focus on reviewing inpatient claims is consistent with the financial incentives associated with the contingency fees they receive, as inpatient claims generally have higher payment amounts compared to other claim types. By law, RAs receive a portion of the recovered overpayments they identify, and RA officials told us that they generally focus their claim reviews on audit issues that have the greatest potential returns. Our analysis found that RA claim reviews for inpatient services had higher average identified improper payment amounts per postpayment claim review relative to other claim types in 2013 and 2014 (see Table 4). For example, in 2013, the RAs identified about 10 times the amount per postpayment claim review for inpatient claims compared to claim reviews for physicians. Although CMS expects the RAs to review all claim types, CMS’s oversight of the RAs did not ensure that the RAs distributed their reviews across claim types in 2013 and 2014. According to CMS officials, the agency’s approval of RA audit issues is the primary way in which CMS controls the type of claims that the RAs review. However, the officials said they generally focus on the appropriateness of the review methodology when determining whether to approve the audit issues, instead of on whether the RA’s claim review strategy encompasses all claim types. The RAs generally determine the types of audit issues that they present to CMS for approval, and based on our analysis of RA audit issues data, we found that from the inception of the RA program to May 2015, 80 percent of the audit issues approved by CMS were for inpatient claims. Additionally, CMS generally gives RAs discretion regarding the claims that they select for review among approved audit issues. Effective October 1, 2013, CMS changed the coverage requirements for short inpatient hospital stays. As a result, CMS prohibited RA claim reviews related to the appropriateness of inpatient admissions for claims with dates of admission between October 1, 2013 and September 30, 2014. In April 2014 and April 2015, Congress enacted legislation directing CMS to continue the prohibition of RA claim reviews related to the appropriateness of inpatient admissions for claims with dates of admission through September 30, 2015, unless there was evidence of fraud and abuse. Protecting Access to Medicare Act of 2014, Pub. L. No. 113-93, § 111, 128 Stat.1040, 1044 (2014); Medicare Access and CHIP Reauthorization Act of 2015, Pub. L. No. 114-10, § 521, 129 Stat. 87, 176 (2015). In July 2015, CMS announced that it would not allow such RA claim reviews for claims with dates of admission of October 1, 2015 through December 31, 2015. The RAs were allowed to continue reviews of short stay inpatient claims for reasons other than reviewing inpatient status, such as reviews related to coding requirements. Beginning on October 1, 2015, Quality Improvement Organizations assumed responsibility for conducting initial claim reviews related to the appropriateness of inpatient hospital admissions. Starting January 1, 2016, the Quality Improvement Organizations will refer providers exhibiting persistent noncompliance with Medicare policies to the RAs for potential further review. CMS stated that it will monitor the extent to which the RAs are reviewing all claim types, may impose a minimum percentage of reviews by claim type, and may take corrective action against RAs that do not review all claim types. CMS has also taken steps to provide incentives for the RAs to review other types of claims. To encourage the RAs to review DME claims— which had the highest rates of improper payments in fiscal years 2012 and 2013—CMS officials stated that they increased the contingency fee percentage paid to the RAs for DME claims. Further, in the requests for proposals for the next round of RA contracts, CMS included a request for a national RA that will specifically review DME, home health agency, and hospice claims. CMS officials told us that they are procuring this new RA because the existing four regional RAs reviewed a relatively small number of these types of claims. Although DME, home health agency, and hospice claims combined represented more than 25 percent of improper payments in both 2013 and 2014, they constituted 5 percent of RA reviews in 2013 and 6 percent of reviews in 2014. In 2013 and 2014, the MACs focused their claim reviews on physician and DME claims. Physician claims accounted for 49 percent of MAC claim reviews in 2013 and 55 percent of reviews in 2014, while representing 30 percent of improper payments in fiscal year 2012 and 26 percent in fiscal year 2013 (see Table 5). DME claims accounted for 29 percent of their reviews in 2013 and 26 percent in 2014, while representing 22 percent of total improper payments in fiscal year 2013 and 16 percent of improper payments in fiscal year 2014. DME claims also had the highest rates of improper payments in both years. According to CMS officials, the MACs focused their claim reviews on physician claims—a category which encompasses a large variety of provider types, including labs, ambulances, and individual physician offices—because they constitute a significant majority of all Medicare claims. CMS officials also told us that they direct MAC claim review resources to DME claims in particular because of their high improper payment rate. Further CMS officials told us that the MACs’ focus on reviewing physician and DME claims was in part due to how CMS structures the MAC claim review workload. CMS official noted that each A/B MAC is responsible for addressing improper payments for both Medicare Part A and Part B, and MAC Part B claim reviews largely focus on physician claims. Additionally, 4 of the 16 MACs are DME MACs that focus their reviews solely on DME claims. CMS officials also noted that MAC reviews of inpatient claims were likely lowered during this period because of CMS’s implementation of new coverage policies for inpatient admissions. Similar to the RAs, the MACs were limited in conducting reviews for short inpatient hospital stays after October 1, 2013. The focus of the SMRC’s claim reviews depended on the studies that CMS directed the contractor to conduct in 2013 and 2014. In 2013, the SMRC focused its claim reviews on outpatient and physician claims, with physician claims accounting for half of all SMRC reviews (see Table 6). Physician claims accounted for 30 percent—the largest percentage—of the total amount of estimated improper payments in fiscal year 2012. In 2014, the SMRC focused 46 percent of its reviews on home health agency claims and 44 percent of its claim reviews on DME claims, which had the two highest improper payment rates in fiscal year 2013. CMS generally directs the SMRC to conduct studies examining specific services, and the number of claims reviewed by claim type is highly dependent on the methodologies of the studies. For example, one SMRC study involved reviewing nearly 50,000 DME claims for suppliers deemed high risk for having improperly billed for diabetic test strips. In 2014, the claim reviews for this study accounted for all of the SMRC’s DME claim reviews and nearly half of all the SMRC claim reviews. Additionally, in 2014, the SMRC reviewed more than 50,000 claims as part of its study that examined five claims from every home health agency. The study followed a significant increase in the improper payment rate for home health agencies from 2012 to 2013, from 6 percent to 17 percent. In some cases, SMRC studies focused on specific providers. For example, a 2013 SMRC study reviewed claims for a single hospital to follow up on billing issues previously identified by the HHS OIG. The RAs were paid an average of $158 per claim review conducted in 2013 and 2014 and identified $14 in improper payments, on average, per dollar paid by CMS in contingency fees (see Table 7). The cost to CMS in RA contingency fees per review decreased from $178 in 2013 to $101 in 2014 because the average identified improper payment amount per review decreased from $2,549 to $1,509. The decrease in the average identified improper payment amount per review likely resulted from the RAs conducting proportionately fewer reviews of inpatient claims in 2014 compared to 2013. The SMRC was paid an average of $256 per claim review conducted in studies initiated in fiscal years 2013 and 2014, though the amount paid per claim review varied by study and varied between years (see Table 8). In particular, the amount paid to the SMRC is significantly higher for studies that involve extrapolation for providers who had their claims reviewed as part of the studies and were found to have a high error rate. Based on our analysis, the higher average amount paid per review in 2014—$346 compared to $110 in 2013—can in part be attributed to the SMRC conducting proportionally more studies involving extrapolation in 2014. As well as increasing study costs, the use of extrapolation can significantly increase the associated amounts of identified improper payments per study. For example, the SMRC study on diabetic test strips involved extrapolation and included reviews of nearly 50,000 claims from 500 providers. It cost CMS more than $23 million to complete, but the SMRC identified more than $63 million in extrapolated improper payments. According to CMS officials, the agency has the SMRC perform extrapolation as part of its studies when it is cost effective—that is, when anticipated extrapolated overpayment amounts are greater than the costs associated with having the SMRC conduct the extrapolations. The amount the SMRC was paid per review also varied based on the type of service being reviewed and the number of reviews conducted. CMS pays the SMRC more for claim reviews for Part A services, such as inpatient and home health claims, than for claim reviews for Part B services, such as physician and DME claims, because CMS officials said that claim reviews of Part A services are generally more resource- intensive. Additionally, CMS gets a volume discount on SMRC claim reviews, with the cost per review decreasing once the SMRC reaches certain thresholds for the number of claim reviews in a given year. The SMRC identified $7 in improper payments per dollar paid by the agency, on average, in 2013 and 2014, though the average amount varied considerably by study and varied for 2013 and 2014. In 2013, the SMRC averaged $25 in improper payments per dollar paid, while in 2014, it averaged $4. The larger figure for 2013 is primarily attributed to two SMRC studies that involved claim reviews of inpatient claims that identified more than $160 million in improper payments but cost CMS less than $1 million in total to conduct. We were unable to determine the cost per review and the amount of improper payments identified by the MACs per dollar paid by CMS because the agency does not have reliable data on funding of MAC claim reviews for 2013 and 2014, and the agency collects inconsistent data on the savings from prepayment claim denials. For an agency to achieve its objectives, federal internal control standards provide that an agency must obtain relevant data to evaluate performance towards achieving agency goals.38 By not collecting reliable data on claim review funding and by not having consistent data on identified improper payments, CMS does not have the information it needs to evaluate MAC cost effectiveness and performance in protecting Medicare funds. GAO/AIMD-00-21.3.1. higher-level, broader contractual work activities. CMS officials told us that they have not required the MACs to report data on specific funds spent to conduct prepayment and postpayment claim reviews. However, as of February 2016, CMS officials told us that all MACs are either currently reporting specific data on prepayment and postpayment claim review costs or planning to do so soon. We also found that data on savings from MAC prepayment reviews were not consistent across the MACs. In particular, the MACs use different methods to calculate and report savings associated with prepayment claim denials, which represented about 98 percent of MAC claim review activity in 2013 and 2014. According to CMS and MAC officials, claims that are denied on a prepayment basis are never fully processed, and the Medicare payment amounts associated with the claims are never calculated. In the absence of processed payment amounts, the MACs use different methods for calculating prepayment savings. According to the MACs: Two MACs use the amount that providers bill to Medicare to calculate savings from prepayment claim denials. However, the amount that providers bill to Medicare is often significantly higher than and not necessarily related to how much Medicare pays for particular services. One MAC estimated that billed amounts can be, on average, three to four times higher than allowable amounts. Accordingly, calculated savings based on provider billed amounts can greatly inflate the estimated amount that Medicare saves from claim denials. Nine MACs calculate prepayment savings by using the Medicare “allowed amount.” The allowed amount is the total amount that providers are paid for claims for particular services, though it is generally marginally higher than the amount that Medicare pays, as it includes the amount Medicare pays, cost sharing that beneficiaries are responsible for paying, and amounts that third parties are responsible for paying. Additionally, the allowed amounts may not account for Medicare payment policies that may reduce provider payments, such as bundled payments. Five MACs compare denied claims with similar claims that were paid to estimate what Medicare would have paid. CMS has not provided the MACs with documented guidance or other instructions for how to calculate savings from prepayment reviews. Federal internal controls standards provide that an agency must document guidance that has a significant impact on the agency’s ability to achieve its goals. In reviewing MAC claim review program documentation, including the Medicare Program Integrity Manual and MAC contract statements of work, we were unable to identify any instructions on how the MACs should calculate savings from prepayment claim denials. Further, several MACs we interviewed indicated that they have not been provided guidance for calculating savings from prepayment denials. CMS officials told us that they were under the impression that all of the MACs were reporting prepayment savings data based on the amount that providers bill to Medicare, which can significantly overestimate the amount that Medicare saves from prepayment claim denials. Because CMS has not provided documented guidance on how to calculate savings from prepayment claim review, the agency lacks consistent and reliable information on the performance of MAC claim reviews. In particular, CMS does not have reliable information on the extent to which MAC claim reviews protect Medicare funds or on how the MACs’ performance compares to other contractors conducting similar activities. CMS contracts with claim review contractors that use varying degrees of prepayment and postpayment reviews to identify improper payments and protect the integrity of the Medicare program. Though we found few differences in how contractors conduct and how providers respond to the two review types, prepayment reviews are generally more cost-effective because they prevent improper payments and limit the need to recover overpayments through the “pay and chase” process, which requires administrative resources and is not always successful. Although CMS considered the Prepayment Review Demonstration a success, and having the RAs conduct prepayment reviews would align with CMS’s strategy to pay claims properly the first time, the agency has not requested legislative authority to allow the RAs to do so. Accordingly, CMS may be missing an opportunity to better protect Medicare funds and agency resources. Inconsistent with federal internal control standards, CMS has not provided the MACs with documented guidance or other instructions for how to calculate savings from prepayment reviews. As a result, CMS does not have reliable data on the amount of improper payments identified by the MACs, which limits CMS’s ability to evaluate MAC performance in preventing improper payments. CMS uses claim review contractors that have different roles and take different approaches to preventing improper payments. However, the essential task of reviewing claims is similar across the different contractors and, without better data, CMS is not in a position to evaluate the performance and cost effectiveness of these different approaches. We recommend that the Secretary of HHS direct the Acting Administrator of CMS to take the following two actions: In order to better ensure proper Medicare payments and protect Medicare funds, CMS should seek legislative authority to allow the RAs to conduct prepayment claim reviews. In order to ensure that CMS has the information it needs to evaluate MAC effectiveness in preventing improper payments and to evaluate and compare contractor performance across its Medicare claim review program, CMS should provide the MACs with written guidance on how to accurately calculate and report savings from prepayment claim reviews. We provided a copy of a draft of this report to HHS for review and comment. HHS provided written comments, which are reprinted in appendix I. In its comments, HHS disagreed with our first recommendation, but it concurred with our second recommendation. HHS also provided us with technical comments, which we incorporated in the report as appropriate. HHS disagreed with our first recommendation that CMS seek legislative authority to allow the RAs to conduct prepayment claim reviews. HHS noted that other claim review contractors conduct prepayment reviews and CMS has implemented other programs as part of its strategy to move away from the “pay and chase” process of recovering overpayments, such as prior authorization initiatives and enhanced provider enrollment screening. However, we found that prepayment reviews better protect agency funds compared with postpayment reviews, and believe that seeking the authority to allow the RAs to conduct prepayment reviews is consistent with CMS’s strategy. HHS concurred with our second recommendation that CMS provide the MACs with written guidance on how to accurately calculate and report savings from prepayment claim reviews. HHS stated that it will develop a uniform method to calculate savings from prepayment claim reviews and issue guidance to the MACs. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Acting Administrator of CMS, appropriate congressional requesters, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or at kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix II. Kathleen M. King, (202) 512-7114, kingk@gao.gov. In addition to the contact named above, Lori Achman, Assistant Director; Michael Erhardt; Krister Friday; Richard Lipinski; Kate Tussey; and Jennifer Whitworth made key contributions to this report.","CMS uses several types of claim review contractors to help reduce improper payments and protect the integrity of the Medicare program. CMS pays its contractors differently—the agency is required by law to pay RAs contingency fees from recovered overpayments, while other contractors are paid based on cost. Questions have been raised about the focus of RA reviews because of the incentives associated with the contingency fees. GAO was asked to examine the review activities of the different Medicare claim review contractors. This report examines (1) differences between prepayment and postpayment reviews and the extent to which contractors use them; (2) the extent to which the claim review contractors focus their reviews on different types of claims; and (3) CMS's cost per review and amount of improper payments identified by the claim review contractors per dollar paid by CMS. GAO reviewed CMS documents; analyzed CMS and contractor claim review and funding data for 2013 and 2014; interviewed CMS officials, claim review contractors, and health care provider organizations; and assessed CMS's oversight against federal internal control standards. The Centers for Medicare & Medicaid Services (CMS) uses different types of contractors to conduct prepayment and postpayment reviews of Medicare fee-for-service claims at high risk for improper payments. Medicare Administrative Contractors (MAC) conduct prepayment and postpayment reviews; Recovery Auditors (RA) generally conduct postpayment reviews; and the Supplemental Medical Review Contractor (SMRC) conducts postpayment reviews as part of studies directed by CMS. CMS, its contractors, and provider organizations identified few significant differences between conducting and responding to prepayment and postpayment reviews. Using prepayment reviews to deny improper claims and prevent overpayments is consistent with CMS's goal to pay claims correctly the first time and can better protect Medicare funds because not all overpayments can be collected. In 2013 and 2014, 98 percent of MAC claim reviews were prepayment, and 85 percent of RA claim reviews and 100 percent of SMRC reviews were postpayment. Because CMS is required by law to pay RAs contingency fees from recovered overpayments, the RAs can only conduct prepayment reviews under a demonstration. From 2012 through 2014, CMS conducted a demonstration in which the RAs conducted prepayment reviews and were paid contingency fees based on claim denial amounts. CMS officials considered the demonstration a success. However, CMS has not requested legislation that would allow for RA prepayment reviews by amending existing payment requirements and thus may be missing an opportunity to better protect Medicare funds. The contractors focused their reviews on different types of claims. In 2013 and 2014, the RAs focused their reviews on inpatient claims, which represented about 30 percent of Medicare improper payments. In 2013 and 2014, inpatient claim reviews accounted for 78 and 47 percent, respectively, of all RA claim reviews. Inpatient claims had high average identified improper payment amounts, reflecting the costs of the services. The RAs' focus on inpatient claims was consistent with the financial incentives from their contingency fees, which are based on the amount of identified overpayments, but the focus was not consistent with CMS's expectations that RAs review all claim types. CMS has since taken steps to limit the RAs' focus on inpatient claims and broaden the types of claims being reviewed. The MACs focused their reviews on physician and durable medical equipment claims, the latter of which had the highest rate of improper payments. The focus of the SMRC's claim reviews varied. In 2013 and 2014, the RAs had an average cost per review to CMS of $158 and identified $14 in improper payments per dollar paid by CMS to the RAs. The SMRC had an average cost per review of $256 and identified $7 in improper payments per dollar paid by CMS. GAO was unable to determine the cost per review and amount of improper payments identified by the MACs per dollar paid by CMS because of unreliable data on costs and claim review savings. Inconsistent with federal internal control standards, CMS has not provided written guidance on how the MACs should calculate savings from prepayment reviews. Without reliable savings data, CMS does not have the information it needs to evaluate the MACs' performance and cost effectiveness in preventing improper payments, and CMS cannot compare performance across contractors. GAO recommends that CMS (1) request legislation to allow the RAs to conduct prepayment claim reviews, and (2) provide written guidance on calculating savings from prepayment reviews. The Department of Health and Human Services disagreed with the first recommendation, but concurred with the second. GAO continues to believe the first recommendation is valid as discussed in the report."
"The Constitution establishes that the President ""shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and counsels, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for and which shall be established by law."" As a corollary to this general maxim, the Constitution provides further that ""[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session."" The Recess Appointments Clause was adopted by the Constitutional Convention without dissent and without debate regarding the intent and scope of its terms. In Federalist No. 67, Alexander Hamilton refers to the recess appointment power as ""nothing more than a supplement...for the purpose of establishing an auxiliary method of appointment, in cases to which the general method was inadequate."" It is generally accepted that the clause was designed to enable the President to ensure the unfettered operation of the government during periods when the Senate was not in session and therefore unable to perform its advice and consent function. In addition to fostering administrative continuity, Presidents have exercised authority under the Recess Appointments Clause for political purposes, appointing officials who might have difficulty securing Senate conformation. While the President's exercise of the recess appointment power in any context may give rise to controversy, the use of the Recess Appointments Clause to appoint judges to temporary positions on Article III courts has emerged as a particularly contentious political issue. Additionally, while the text of the Recess Appointments Clause does not differentiate between the appointment of judges and non-judges, the unique status of Article III judges gives rise to an inherent constitutional tension between the President's recess appointment authority and traditional notions of judicial independence, and has been the subject of recent litigation. Two fundamental textual issues inhere to any consideration of the Recess Appointments Clause. The first point of inquiry in this regard is what constitutes a vacancy ""that may happen during the Recess of the Senate."" If the term ""happen"" is interpreted as referring only to vacancies that occur during a recess, it necessarily follows that the President would lack authority to make a recess appointment to a vacancy that existed prior to the recess. Conversely, if ""happen"" is construed more broadly to encompass vacancies that exist during a recess, the President would be empowered to make a recess appointment to any vacant position, irrespective of whether the position became vacant prior to or during ""the Recess of the Senate."" While this issue was a source of controversy in the late eighteenth and early nineteenth centuries, a long line of Attorney General opinions and judicial decisions have adopted the broader interpretation of the clause. Attorney General William Wirt, serving under President Monroe, concluded that the phrase encompassed all vacancies that happen to exist during ""the Recess,"" declaring that ""[t]his seems to me the only construction of the Constitution which is compatible with its spirit, reason, and purpose."" This interpretation was first adopted by a federal court in the 1880 decision In re Farrow , and has adhered in judicial opinions on the issue in the modern era. Similar interpretive difficulties adhere to the meaning of the phrase ""the Recess of the Senate."" An opinion issued by Attorney General Knox in 1901 concluded that the phrase applied only to adjournments between sessions of Congress (commonly referred to as ""intersession"" recesses). In reaching this determination, Knox placed significant weight on the use of the definite article ""the"" in the Recess Appointments Clause, emphasizing that ""[i]t will be observed that the phrase is ' the recess.'"" The opinion further concluded that if recess appointments were allowed during periods other than an intersession recess, nothing would prevent an appointment from being made ""during any adjournment, as from Thursday or Friday until the following Monday."" This position was abandoned in 1921 in an opinion issued by Attorney General Daugherty that declared that an appointment made during a 29 day recess was constitutional. The Daugherty opinion focused on the practical aspects of the recess appointment dynamic, stating that ""[i]f the President's power of appointment is to be defeated because the Senate takes an adjournment to a specified date, the painful and inevitable result will be measurably to prevent the exercise of governmental functions."" Further emphasizing this functional approach, the Daugherty opinion rejected the notion that this broader interpretation would authorize intrasession appointments during brief adjournments, declaring that ""an adjournment for 5 or even 10 days [cannot] be said to constitute the recess intended by the Constitution. The opinion concluded by emphasizing that while ""[e]very presumption is to be indulged in favor of the validity of whatever action [the President] may take..., there is a point, necessarily hard of definition, where palpable abuse of discretion might subject his appointment to review."" Subsequent Attorney General and Department of Justice Office of Legal Counsel opinions have continued to support the constitutionality of intrasession recess appointments, with more recent pronouncements on the issue asserting that the clause encompasses all recesses in excess of three days. Since the early history of the Republic, Congress has established a statutory framework designed to protect the Senate's constitutional role in the confirmation process. For instance, the Federal Vacancies Reform Act of 1998 (which governs the filling of vacancies falling outside the scope of the Recess Appointments Clause) establishes which individuals may be designated by the President to temporarily perform the duties and functions of a vacant office and the length of time a designee may serve. The original version of the Vacancies Act was enacted in 1868, and the legislative roots of such provisions can be traced back to a 1795 enactment limiting the time a temporary assignee could hold office to six months. Regarding recess appointments specifically, 5 U.S.C. §5503, a successor to a provision originally enacted in 1863, establishes that if a vacancy existed while the Senate was in session a person subsequently appointed to that position during a recess may not receive his salary until he is confirmed by the Senate. Exceptions to this payment prohibition are provided (1) for appointees to vacancies that arise within 30 days of the recess; (2) for appointees to an office for which a nomination was pending at the time of the recess, so long as the nomination is not of an individual appointed during the preceding recess of the Senate; and (3) for appointees selected to an office where a nomination had been made but rejected by the Senate within 30 days of the recess, and the appointee was not the individual so rejected. Section 5503(b) provides that a nomination to fill a vacancy falling within any of the aforementioned exceptions must be submitted to the Senate not later than 40 days after the beginning of the next session of the Senate. Additionally, a provision has been included in all Treasury and General Governmental Appropriations Acts for over 60 years that prohibits the payment of the salary of any recess appointee whose nomination has been voted down by the Senate. The provisions governing recess appointments are designed to protect the Senate's advice and consent function by confining the recess appointment power of the President. By targeting the compensation of appointees as opposed to the President's recess appointment power itself, these limitations act as indirect controls on recess appointments, and their constitutionality has not been adjudicated. The court in Staebler v. Carter noted in dicta that ""if any and all restrictions on the President's recess appointment power, however limited, are prohibited by the Constitution, 5 U.S.C. §5503...might also be invalid."" Additional constitutional concerns might arise from the application of these provisions to judicial recess appointees. Presidents have made over 300 recess appointments to the federal judiciary, including twelve to the Supreme Court, since the first Administration of George Washington. The practice of making such appointments lessened considerably after the Eisenhower Administration, with only four judicial recess appointments having occurred since 1960. Despite the controversy attendant to judicial recess appointments, the President's authority to make such appointments has been challenged only in a handful of cases, and the Supreme Court has consistently declined the opportunity to hear the issue. The first legal challenge in this context arose from President Eisenhower's intersession recess appointment on August 17, 1955, of John M. Cashin as a U.S. district judge for the Southern District of New York. During his service as a recess appointee, Judge Cashin presided over the trial and conviction by jury of Dominic Allocco. On appeal, Alloco argued that his conviction and sentence should be set aside, on the basis that Judge Cashin was not constitutionally empowered to preside over the trial. In particular, Allocco argued that (a) the President lacks authority to appoint ""temporary"" judges; (b) if such appointments are permissible, ""temporary"" judges may not preside over criminal trials; and (c) the President lacks authority to fill vacancies in the judiciary that arise when the Senate is in session. Addressing these arguments in United States v. Allocco , the Court of Appeals for the Second Circuit began its analysis by stating that ""[t]he recess power given to the President in Article II, Section 2, is expressly made applicable to 'all' vacancies; and the 'vacancies' are clearly vacancies in the offices described in the [Appointments Clause], which could otherwise be filled only with the advice and consent of the Senate."" Based upon this construction, the court rejected the notion that judicial vacancies were implicitly excluded from the Recess Appointments Clause by virtue of the tenure and salary protections conferred upon judges in Article III. Accordingly, the court held that since the Recess Appointments Clause empowers the President to make recess appointments of judges, ""it necessarily follows that such judicial officers may exercise the power granted to Article III courts."" The court likewise rejected the argument that the President's recess appointment power does not extend to offices that become vacant while the Senate is in session, declaring that such an interpretation ""would create Executive paralysis and do violence to the orderly functioning of our complex government."" In United States v. Woodley , the Court of Appeals for the Ninth Circuit considered a challenge to the constitutionality of President Carter's intersession recess appointment of Walter Heen as a U.S. District judge for the District of Hawaii on December 30, 1980. Noting that ""[s]trong arguments can be marshaled both for and against application of the recess appointment clause to the judiciary,"" the panel weighed the provisions of Article II in relation to ""the institutional protections of article III that the Framers considered essential to judicial independence,"" ultimately holding that ""only those judges enjoying article III protections may exercise the judicial power of the United States."" In reaching this conclusion, the panel concluded that the ""very specific language of article III"" took precedence over the ""general language of article II,"" particularly in light of declarations from the Framers and the Supreme Court emphasizing the need for judicial independence. The panel also rejected the argument that the long history of acceptance of judicial recess appointments by both Congress and the Executive ameliorated any constitutional infirmities adhering to the practice, stating that ""[w]hile the members of both the legislative and executive branches are sworn to uphold the Constitution, the courts alone are the final arbiters of its meaning."" The panel went on to note that a long line of Supreme Court authority indicated that ""great weight was to be given to historical practice,"" but declared that such reasoning ""no longer, however, represents the thinking of the Court."" The panel cited the Supreme Court's then recent decision in INS v. Chadha (striking down the legislative veto) for the proposition that ""any practice, no matter how fully accepted or efficient, is 'subject to the demands of the Constitution which defines powers and...sets out just how they are to be exercised.'"" Accordingly, the panel held that while judicial recess appointments were widely accepted and could be seen as contributing to judicial efficiency, they were nonetheless unconstitutional, as ""[s]uch appointments...offend the explicit and unambiguous command of article III that the judicial power be exercised only by those enjoying life tenure and protection against diminution of compensation."" The Ninth Circuit voted to rehear the case en banc , ultimately rejecting the determinations made by the panel in a 7-4 decision. Addressing the panel's conclusion that the specific language of Article III governs the general language of the Recess Appointments Clause, the court espoused the Supreme Court's declaration that all provisions of the Constitution ""are to be deemed of equal validity,"" and further noted that ""while article III speaks specifically about the tenure of federal judges, article II is equally specific in addressing the manner of their appointment."" Accordingly, the court concluded that ""[t]here is no reason...to favor one Article over the other."" In support of this holding, the court explained that Article II ""explicitly provides that the President has the power to fill all vacancies during the recess of the Senate,"" stating that ""there is no basis upon which to carve out an exception from the recess power for federal judges."" Additionally, the court gave significant weight to the fact that ""[a]pproximately 300 judicial recess appointments have been made in our nation's history,"" as well as the fact that ""[t]he Legislative Branch has consistently confirmed judicial recess appointees without dissent."" The court likewise rejected the panel's conclusion that the decision in INS v. Chadha rendered reliance on historical practice inappropriate. The court specifically noted that the legislative veto was ""a recent practice, barely 50 years old,"" the use of which ""does not reach back to the days of the Framers such as the practice at issue."" The court further stated that the legislative veto is an ""impermissible statutory methodology, unsupported by an express grant of constitutional authority."" The court acknowledged that lack of life tenure and protection from diminution of salary subjects a judicial recess appointee ""in theory...to greater political pressure than a judge whose nomination has been confirmed,"" but concluded that the power bestowed upon the President by Article II compelled it to ""therefore view the recess appointee not as a danger to the independence of the judiciary, but as the extraordinary exception to the prescriptions of article III."" The decision in Woodley was accompanied by a vigorous four judge dissent that closely mirrored the panel decision in arguing that ""the direct conflict"" between the Recess Appointments Clause and the tenure and salary provisions of Article III should be resolved in favor of ""the fundamental constitutional values of judicial independence and separation of powers,"" stating that such principles ""must prevail over a peripheral concern for governmental efficiency,"" and ""uncritical acceptance of historical practice."" The Supreme Court denied certiorari in Woodley , putting an end to formal legal proceedings. Judge Heen's recess appointment expired at the end of the first session of the 97 th Congress, and he was not re-nominated for appointment by President Reagan. The next judicial recess appointment did not occur for 20 years, when President Clinton installed Roger L. Gregory as a recess appointee to the Fourth Circuit on December 27, 2000, during an intersession recess. While this appointment gave rise to disapprobation in the Senate, it was not the subject of litigation. Gregory was re-nominated by President George W. Bush and was confirmed by the Senate on July 20, 2001. President George W. Bush made two judicial recess appointments in 2004, selecting Charles W. Pickering to serve on the Fifth Circuit on January 16, 2001 during an intersession recess, and appointing William H. Pryor to the Eleventh Circuit on February 20, 2004 on the seventh day of a ten day intrasession recess. In statements accompanying the appointments, the President noted that the selections would fill vacancies that had been designated as ""judicial emergenc[ies],"" and further pronounced that the appointments were justified in light of ""unprecedented obstructionist tactics"" in the Senate that were, in the view of the President, ""inconsistent with the Senate's constitutional responsibility,"" and injurious ""to our judicial system."" While both appointments gave rise to criticism, the Pryor appointment was particularly controversial, having occurred during a brief intrasession recess. While there have been over 300 recess appointments to Article III courts, only fourteen have been intrasession, with the eleven day recess giving rise to the Pryor appointment constituting the shortest period of time in which an intrasession judicial recess appointment has been made. Intrasession recess appointments were rare prior to 1943, when recesses during congressional sessions became more common. It appears that Presidents made intrasession appointments only three times prior to 1943: in 1867 during a 73 day recess, in 1921 during a 27 day recess, and in 1928 during a 13 day recess. Of these, the only intrasession judicial recess appointment occurred during the 1867 recess. While the appointment of Pickering did not give rise to any litigation, the constitutionality of Judge Pryor's appointment was considered en banc by the Eleventh Circuit in Evans v. Stephens . The court began its analysis by analyzing the structure of the Recess Appointments Clause, determining that ""[t]he text of the United States Constitution authorizes recess appointments of judges to Article III courts."" As in Woodley , the court gave weight to the long history of such appointments, stating that while historical evidence alone ""might not"" render them constitutional, ""this historical practice—looked at in light of the text of the Constitution—supports our conclusion in favor of the constitutionality of recess appointments to the federal judiciary."" As in Woodley , the court acknowledged that there is ""some tension between Article III and the recess appointment of judges to Article III courts,"" but rejected the argument that the tenure and salary protections of Article III trump the Recess Appointments Clause, stating that ""[t]he conflict between these equally important constitutional provisions is not irreconcilable: the temporary judges appointed under the Recess Appointments Clause are an exception to the general rule of Article III."" The court buttressed this determination with a consideration of the purpose of the Recess Appointments Clause, stating that ""it was the intent of the Framers to keep important offices filled and government functioning."" Accordingly, the court declared that while judicial recess appointees lacked the protections enjoyed by confirmed Article III judges, ""we accept the Framers thought that what might be intolerable, if prolonged, was acceptable for a relatively short while."" The court next turned to the question of whether intrasession recess appointments are constitutionally permissible. Declaring that it focused first on the language of the Constitution and then on historical precedent and the purpose of the clause, the court held that ""President Bush appointed Judge Pryor during a legitimate Senate recess, that is, during a 'Recess' within the meaning of the Recess Appointments Clause."" Acknowledging that historical and textual arguments could be made to the contrary, the court stated that such arguments were not strong enough to persuade it that the President's interpretation was incorrect, and pronounced that it instead ""accept[ed] that 'the Recess,' originally and through today, could just as properly refer generically to any one—intrasession or intersession—of the Senate's acts of recessing, that is, taking a break."" The court was further persuaded by historical precedent establishing that ""[t]welve Presidents have made more than 285 intrasession recess appointments,"" and by its determination that ""[t]he purpose of the Clause is no less satisfied during an intrasession recess than during a recess of potentially even shorter duration that comes as an intersession break."" The court was likewise untroubled by the brief duration of the intrasession recess giving rise to the Pryor appointment: The Constitution, on its face, does not establish a minimum time that an authorized break in the Senate must last to give legal force to the President's appointment power under the Recess Appointments Clause. And we do not set that limit today. Although a President has not before appointed a judge to an Article III court during an intrasession recess as short as the one in this case, appointments to other offices—offices ordinarily requiring Senate confirmation—have been made during intrasession recesses of about this length or shorter. Furthermore, several times in the past, fairly short intrasession recesses have given rise to presidential appointments of judges to Article III courts. Having determined that the clause allowed for recess appointments to the federal judiciary, even during an intrasession recess, the court concluded its opinion by declaring that it was ""not persuaded that the President exceeded his constitutional authority in any way that causes Judge Pryor's judicial appointment to be invalid. We conclude that Judge Pryor may sit with this court lawfully and act with all the powers of a United States Circuit Judge during his term of office."" The decision in Evans was accompanied by a dissent from Judge Barkett arguing that the plain meaning of the Recess Appointments Clause mandates a restrictive interpretation of the term ""happen."" Analyzing the text of the clause and surveying a series of eighteenth-century dictionaries, Judge Barkett argued that ""the question of when a vacancy must occur admits of very little ambiguity. Accordingly, the plain meaning rule compels the conclusion that the Constitution means what it says: the recess appointment power of Article II is good only for those vacancies that happen while the Senate is in recess."" Judge Barkett went on to assert that the text of the clause, viewed in light of the purpose of the recess appointment power and separation of powers principles mandated further that the President only be empowered to make appointments during the recess in which they occur. The dissent's position in Evans rendered it unnecessary for it to address the constitutionality of judicial recess appointments or the validity of intrasession recess appointments, given that the vacancy filled by Pryor did not occur during the recess in which he was appointed. While Judge Barkett's dissent does not specifically consider Article III or intrasession appointments, the rationale underlying his dissent is applicable to both contexts. According to Judge Barkett, a literal interpretation of the Recess Appointments Clause was necessitated by the ""real, concrete concern that the understanding of the recess appointment power embraced by the majority will allow the President to repeatedly bypass the role the Framers intended the Senate to play in reviewing presidential nominees."" The potential for such injury to the Senate's prerogatives in this regard is arguably magnified by judicial acceptance of intrasession appointments. Specifically, the broad interpretation of the President's authority under the Recess Appointments Clause adopted by the Eleventh Circuit could be seen as lending credence to the proposition that congressional restrictions on the President's recess appointment power are constitutionally impermissible. This determination would arguably be particularly applicable in the judicial recess appointment context in light of Article III's prohibition on diminution of judicial salary. If such an interpretation adheres, it could give rise to a dynamic whereby the President would have a legal and constitutional basis upon which to completely bypass the Senate Confirmation process. Specifically, the authority to make intersession or intrasession recess appointments to any position, coupled with the invalidity of the statutory restrictions discussed above, would enable the President to make successive recess appointments during short recesses with the practical effect of enabling an appointee to serve throughout the course of an Administration without submitting to the Senate confirmation process. Such a prospect might be viewed as particularly problematic for Article III purposes, as it would allow successive recess appointments of judges, arguably beyond the ""relatively short"" period of service deemed appropriate for such appointees by the court in Evans . Accordingly, the holding in Evans could be seen as implicitly approving the Department of Justice's assertion that the recess appointment power extends to ""all vacancies and all recesses (with the single arguable exception of de minimis breaks of three days or less)."" Such an interpretation builds upon the maxims delineated in Allocco and Woodley , and arguably transforms the Recess Appointments Clause from the supplementary and auxiliary mechanism discussed by Hamilton into more significant grant of presidential power. The Supreme Court denied the petitioner's motion for certiorari in Evans on March 21, 2005. The denial was accompanied by an opinion by Justice Stevens emphasizing that ""a denial is not a ruling on the merits of any issue raised by the petition."" While stating that there were ""valid prudential concerns supporting the decision to deny certiorari,"" Justice Stevens declared that ""[t]his is a case that raises significant constitutional questions regarding the President's intrasession appointment of [Judge Pryor]."" Accordingly, Justice Stevens stressed that ""it would be a mistake"" to assume that the denial of certiorari constituted a decision on the merits with regard to the President's constitutional authority ""to fill future Article III vacancies, such as vacancies on this Court, with appointments made absent consent of the Senate during short intrasession 'recesses.'"" While the majority opinions in Allocco, Woodley, and Evans v. Stephens validate the President's authority to make recess appointments to the federal judiciary, the contrary arguments forwarded by the original panel in Woodley and the dissents from the en banc decisions of the Ninth and Eleventh Circuits indicate that there is broad range of opinion among members of the judiciary when considering the Recess Appointments Clause, not only in the context of judicial recess appointments, but with regard to the proper scope of the President's general authority thereunder. The unsettled status of these constitutional issues is brought into further relief by virtue of Justice Steven's opinion accompanying the denial of certiorari in Stephens , admonishing observers that ""significant constitutional questions"" adhere in this context. Thus, despite the outcome of litigation on the issue to date, it would appear that a significant degree of tension remains between the President's recess appointment power and the principles of judicial independence that undergird the provisions of Article III.","Article II of the Constitution provides that the President ""shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and counsels, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for and which shall be established by law."" As a supplement to this authority, the Constitution further provides that ""[t]he President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session."" The Recess Appointments Clause was designed to enable the President to ensure the unfettered operation of the government during periods when the Senate was not in session and therefore unable to perform its advice and consent function. In addition to fostering administrative continuity, Presidents have exercised authority under the Recess Appointments Clause for political purposes, appointing officials who might be viewed unfavorably by the Senate. While the President's exercise of the recess appointment power in any context may give rise to controversy, the use of the Recess Appointments Clause to appoint judges to temporary positions on Article III courts can be particularly politically contentious. Presidents have made over 300 recess appointments to the federal judiciary, including twelve to the Supreme Court, since the first Administration of George Washington. The practice of making such appointments lessened considerably after the Eisenhower Administration, with only four judicial recess appointments having occurred since 1960. Despite the controversy attendant to judicial recess appointments, the President's authority to make such appointments has been challenged only in a handful of instances, with the most recent litigation arising from President George W. Bush's recess appointment of William H. Pryor to the Court of Appeals for the Eleventh Circuit on February 20, 2004. This report provides an overview of the legal and constitutional issues pertaining to the recess appointment of judges to Article III courts, with a particular focus on the proceedings involving the appointment of Judge Pryor."
"Medicaid enrollees across various eligibility categories may have access to private health insurance for a number of reasons. For example, some adults may be covered by employer-sponsored private health insurance even though they also qualify for Medicaid. Children similarly may be eligible for Medicaid while also being covered as a dependent on a parent’s private health plan. Individuals age 65 and older may receive private coverage from a former employer or purchase such coverage to supplement their Medicare coverage. Medicaid benefits and costs may vary depending on an enrollee’s eligibility category. CMS requires states to provide for the identification of Medicaid enrollees’ other sources of health coverage, verification of the extent of the other sources’ liability for services, avoidance of payment for services in most circumstances where the state believes a third party is liable, and recovery of reimbursement from liable third parties after Medicaid payment, if the state can reasonably expect to recover more than it spends in seeking Specifically, states must provide that the following steps 1. Coverage identification. To identify enrollees with third-party health coverage, states are required to request coverage information from potential Medicaid enrollees at the time of any determination or redetermination of eligibility for Medicaid. States are also required to obtain and use information pertaining to third-party liability, for example by conducting data matches with state wage information agencies, Social Security Administration wage and earning files, state motor vehicle accident report files, or state workers compensation files. 2. Coverage verification. When other health coverage is identified, states need to verify the information, including the services covered through the other insurance and the dates of eligibility. 3. Cost avoidance. Cost avoidance occurs when states do not pay providers for services until any other coverage has paid to the extent of its liability, rather than paying up front and recovering costs later. After a state has verified other coverage, it must generally seek to ensure that health care providers’ claims are directed to the responsible party.of the cost savings associated with third-party liability. The cost-avoidance process accounts for the bulk 4. Payment recovery. When states have already paid providers for submitted claims for which a third party is liable, they must seek reimbursement from the third party, if it is cost effective to do so. States have flexibility in determining specific approaches to achieve these ends. For example, states are increasingly contracting with managed care plans to deliver services to Medicaid enrollees (such plans are hereafter referred to as Medicaid managed care plans), and may delegate TPL responsibilities to such plans. Both states and Medicaid managed care plans may obtain the services of a contractor to identify third-party coverage by conducting electronic data matches and to conduct other TPL responsibilities, such as payment recovery. Ensuring compliance with Medicaid TPL requirements has long been challenging for states. The McCarran-Ferguson Act affirms the authority of states to regulate the business of insurance in the state, without interference from federal regulation, unless federal law specifically provides otherwise. Thus, states generally regulate private health insurers operating in the state. However, states may not have authority over private insurers that are not licensed to do business in the state but still provide coverage to state residents. For example, some individuals work and receive health insurance through employment in one state but live in a neighboring state. In addition, states are preempted by the Employee Retirement Income Security Act of 1974 (ERISA) from regulating employer-sponsored health benefit plans that self-insure coverage rather than purchase coverage from an insurer. Due to the bifurcated nature of private health insurance regulation, both federal and state legislation has been required to allow states to enforce TPL requirements. For example, the Omnibus Budget Reconciliation Act of 1993 required all states to enact laws prohibiting insurers from taking Medicaid status into account in enrollment or payment for benefits and to enact laws giving the state rights to payments by liable third parties. In addition, the Deficit Reduction Act of 2005 (DRA) contained provisions affecting state authority to verify coverage and recoup payments from liable health insurers. Under the DRA, states must attest that they have laws in place to require health insurers to, among other requirements, provide information necessary to identify Medicaid enrollees with third- party coverage and, within specified time limits, respond to inquiries from the state regarding claims, as well as to agree not to deny claims solely because of the date the claim was submitted, the form that was used, or the failure to properly document coverage at the point of service. The 2013 HHS OIG report on TPL cost savings and challenges concluded that the DRA provisions likely had a positive effect on states’ ability to avoid costs and recover payments from private health insurers, in part through improvements in states’ identification of enrollees with insurance. States also credited process improvements, such as online verification of coverage and electronic data matching agreements with private insurers, as well as contractor assistance. However, the study reported that states continue to face key challenges working with private insurers, including the following: 96 percent of states reported challenges with insurers denying claims for procedural reasons. 90 percent of states reported challenges with insurer willingness to release coverage information to states. 86 percent of states reported challenges with insurers providing incomplete or confusing information in response to attempts to verify coverage. 84 percent of states reported problems with pharmacy benefit managers—entities which administer pharmacy benefits on behalf of insurers or employers—such as pharmacy benefit managers not providing coverage information or claiming a lack of authority to pay claims to Medicaid agencies. Based on responses to the U.S. Census Bureau’s ACS, we estimate that 7.6 million Medicaid enrollees—13.4 percent—also had a private source of health insurance in 2012. However, the prevalence of private health insurance varied among four Medicaid eligibility categories that we analyzed—children, adults, disabled, and aged. For example, according to our estimates, 34.6 percent of aged Medicaid enrollees also had private health insurance, compared to 12.4 percent of adult Medicaid enrollees and 8.4 percent of children. (See fig. 1 and see app. II, table 1, for more detailed estimates). The number of Medicaid enrollees who also have private health insurance is expected to increase beyond the estimated 7.6 million with the expansion of Medicaid; however, the extent of the increase is uncertain. The Congressional Budget Office projected that approximately 7 million nonelderly individuals would enroll in Medicaid in 2014 as a result of the While some newly Medicaid expansion and other PPACA provisions.Medicaid eligible individuals can be expected to have access to private sources of health insurance, the extent to which they will participate in Medicaid, or maintain private insurance once enrolled in Medicaid, is unknown. If these individuals’ rates of private insurance are similar to the 12.4 percent of adult Medicaid enrollees whom we estimated had private insurance in 2012, about 868,000 of the projected 7 million new enrollees in 2014 would be expected to have private insurance. States face multiple challenges in ensuring that Medicaid is the payer of last resort for enrollees that have private health insurance. Selected states and CMS have taken various steps to address some of these challenges; however, selected states and stakeholders suggested that further CMS guidance and efforts to facilitate information sharing among states could improve TPL efforts nationwide. As the identification of Medicaid enrollees with private health insurance is a critical first step for achieving TPL cost savings, many states nationwide conduct electronic data matches of Medicaid enrollment files with insurer files themselves or through a contract with a vendor that conducts matches on the state’s behalf. While not required, such state efforts to independently identify enrollees with private insurance can lead to significant cost savings. For example, Minnesota officials reported that by contracting with a vendor for electronic data matching, the state nearly doubled identified cases of TPL in a 5-year period, saving the state an Despite such efforts, states we estimated $50 million over this period.included in our review reported experiencing the following challenges to their coverage identification efforts: Challenges obtaining out-of-state coverage data. Medicaid enrollees in one state may have coverage from a health insurer that is licensed in a different state—for example, some enrollees work and participate in employer-sponsored insurance in one state while living and enrolling in Medicaid in a neighboring state. State laws requiring insurers to provide coverage data may not apply if insurers are not licensed in the state, and officials from two of the states we reviewed noted that insurers sometimes refuse to provide coverage data to Medicaid agencies outside the state in which they are licensed. HMS representatives reported that, while HMS advocates that insurers provide coverage data to Medicaid agencies outside the state in which the insurers are licensed, many insurers refuse to do so. According to CMS, there is a significant amount of third-party coverage derived from insurers licensed in a different state from where the Medicaid enrollee resides. Challenges with insurers conducting data matches. State and HMS representatives reported that, rather than providing coverage data to the state (or its contractor, as applicable), some insurers request the Medicaid data and perform the data match themselves. HMS representatives reported that, in such cases, states only have access to matches identified by the insurer, which may understate the number of individuals with overlapping coverage. One state reported estimating that insurers missed the identification of about 7 percent of the individuals with private insurance when insurers conducted the match instead of the state’s contractor. Challenges with obtaining key data elements. Insurers may not maintain or provide states or their contractors access to key data elements, such as Social Security numbers, and not having access to these data can reduce the efficiency or usefulness of data matches, according to officials in several states we reviewed. For example, officials from two selected states noted that data matches are more difficult and error-prone when Social Security numbers are not available. Similarly, officials from two other states we reviewed reported that their ability to verify identified coverage would be assisted if employer identification numbers were included in insurer coverage data. Challenges with timeliness of data matches. Most selected states reported that there is a time lag, typically up to 15 to 30 days, between an individual’s enrollment in Medicaid and when the individual is included in a data match with private insurers. As a result, states may not be able to identify other coverage until after enrollees have already begun using services. States would generally then seek reimbursement for paid claims. States in our review reported taking various steps to address these and other coverage identification challenges. Four of the eight selected states reported initiatives underway or completed to improve data-matching strategies to identify private coverage, some of which focused on nationally coordinated approaches. For example, Minnesota officials reported that Minnesota law allows the state Medicaid agency and Medicaid managed care plans to participate in a national coverage data registry, launched in late 2013 by CAQH, an association of health plans and trade associations. The data registry allows participating insurers and states to submit coverage data files for comparison with files of other participants in order to identify individuals with overlapping coverage. Minnesota officials commented that the registry was at an early stage but expected that participation of private insurers would increase over time because of benefits to private insurers of coordinating with one another. Table 1 describes a variety of initiatives underway or completed to improve coverage data in selected states. In addition, at least two of the eight states had laws that addressed challenges with obtaining private insurer compliance with TPL requirements, including requirements to provide coverage data. For example, Michigan law authorizes the state to collect coverage data from insurers to determine TPL and to assess penalties on insurers for noncompliance.in obtaining national coverage data from insurers. In addition, Minnesota Michigan officials reported that the state was successful law requires that all insurers that cover state Medicaid enrollees must comply with TPL requirements irrespective of where they are licensed. Selected states have taken various actions that support or increase oversight of Medicaid managed care plan TPL activities, as applicable. For example, in five of the eight states in our review, individuals with third- party coverage may be eligible to enroll in Medicaid managed care plans The laws and certain TPL responsibilities are delegated to these plans. of two selected states—Ohio and Minnesota—specifically authorize Medicaid managed care plans to recover TPL payments on the state’s behalf. Ohio officials in particular credited the legislation as effective in improving insurer cooperation with the state’s Medicaid managed care plans. While the DRA required states to have laws in effect compelling insurers to provide states with access to data and recognize the states right to recoup payments, it did not provide that those laws specifically require insurers to similarly cooperate with Medicaid managed care plans conducting such work on behalf of states. CMS provided guidance that, when states delegate TPL responsibilities to a Medicaid managed care plan, third-parties should treat the plan as if it were the state.representatives reported that this guidance has been effective in garnering cooperation from insurers that previously refused to provide coverage data or pay claims to Medicaid managed care plans in various states without legislation specifically requiring them to do so. However, a few insurers continue to refuse to cooperate with such plans despite this guidance, according to information provided by representatives of HMS HMS and Medicaid Health Plans of America (MHPA)—an association of Medicaid managed care plans. In addition, Minnesota sought to improve its oversight of Medicaid managed care TPL activities by initiating a program to allow the state to review Medicaid managed care plan TPL payment recoveries and to arrange for conducting supplemental recoveries when the plans had not recouped payment within a set time. However, according to a representative of the National Association of Medicaid Directors, it can be difficult for states to work with Medicaid managed care plans and insurers as needed to strengthen state oversight. The other states included in our review that delegate TPL work to Medicaid managed care plans did not report conducting this type of oversight, which is consistent with information provided by MHPA in which plans indicated that some states that contract with Medicaid managed care plans to perform TPL activities do not specifically review these activities. We have previously found that some Medicaid managed care plans may have a conflict of interest in conducting payment recoveries. Specifically, Medicaid managed care plans may not have appropriate incentives to identify and recover improper payments—which include payments made for treatments or services that were not covered by program rules, that were not medically necessary, or that were billed for but never provided—because doing so could reduce future capitation rates. Most selected states reported challenges with denials from private insurers for procedural reasons, such as for not obtaining prior authorization before receiving services or not using in-network providers. HMS representatives estimated that in 2013, insurers had denied about $120 million in claims for failure to obtain prior authorization, and about $30 million for failure to use an in-network provider, for states and for Medicaid managed care plans with which HMS contracted. Selected states reported various methods to reduce such denials: Ohio and Missouri laws explicitly prohibit denials due solely to a lack of prior authorization for services. Massachusetts, Georgia, and New York officials reported that they contest denials due solely to a lack of prior authorization for services based on general state legislation passed in accordance with the DRA, which requires states to prohibit insurers from denying claims based solely on the date the claim was submitted, the form that was used, or the failure to properly document coverage at the point of service. Michigan and Minnesota, through their Medicaid provider manuals, require providers to check for third-party coverage and specify that providers are not to be paid by Medicaid for services provided to enrollees if rules of the third-party coverage were not followed. For example, Michigan’s Medicaid provider manual states that Medicaid will not cover charges incurred when enrollees elect to go out of their third-party insurer’s preferred provider network. Michigan and Minnesota officials reported that these types of denials were generally not problems for the state. See Michigan Medicaid Provider Manual, Coordination of Benefits, §§ 1.3, 2.1 (October 2014) and Minnesota Medicaid Provider Manual, Billing Policy (Overview), Section on Coordination of Services (September 2014) and Medicare and Other Insurance, Section on Third-Party Liability (TPL) (December 2013). CMS has taken steps, including issuing additional guidance, to address certain challenges that states face in ensuring that Medicaid is the payer of last resort. For example, CMS published a set of frequently asked questions (FAQ) in September 2014 that clarified the parameters under which health insurers are permitted to release coverage information to states in light of Health Insurance Portability and Accountability Act of 1996 privacy restrictions, and emphasized the role of state legislation in specifying the scope of information required to be submitted by health insurers. The guidance also reiterated previously published information, such as clarifying that when states delegate TPL responsibilities to a Medicaid managed care plan, third parties are required to treat the plan as if it were the state. CMS officials also noted that the agency is available to provide technical assistance relating to TPL at the request of states or other entities. In addition, CMS has also taken steps to foster collaboration among states. For example, CMS solicited effective TPL practices that had been implemented as of 2013 from states and published the responses. On a related note, CMS officials highlighted the role of the Coordination of Benefits (COB)-TPL Technical Advisory Group (TAG) in providing states with opportunities to coordinate and share information on TPL challenges and effective practices. Specifically, CMS officials said that COB-TPL TAG representatives are responsible for canvassing states about problems that may be occurring and reporting these back to CMS. However, officials from one state suggested that COB-TPL TAG representatives need to do more to proactively survey states and share information about problems that states not directly represented on the COB-TPL TAG are experiencing. While acknowledging CMS’s efforts, stakeholders and officials from selected states suggested a need for additional federal action, commenting on how, for example, additional or clarified guidance could facilitate state efforts to conduct certain TPL activities. The National Association of Medicaid Directors recommended, given the growth in states’ use of managed care, that CMS require states to share available insurance coverage information with Medicaid managed care plans and provide an approved approach for conducting oversight of such plans’ TPL activities. According to a representative of this association, several states indicated that explicit CMS guidance in this area would provide states leverage to strengthen their Medicaid managed care plan contracts and oversight related to TPL. HMS representatives recommended that CMS strengthen its statements encouraging insurers to share coverage information with out-of-state Medicaid agencies, and further clarify through regulations existing CMS guidance regarding insurer cooperation with Medicaid managed care plans that conduct TPL activities on behalf of states. State officials suggested that CMS could provide information to ensure all states are aware of promising available data-matching strategies. CMS, however, may have incomplete information to inform such guidance as, according to CMS, the agency does not actively track all states’ coverage-identification strategies on an ongoing basis, and in some cases, may not be aware of promising state initiatives. While the effective state practices CMS solicited and shared with states included information on initiatives implemented as of 2013, other state initiatives underway were not included. For example, Minnesota officials said they had submitted information about the CAQH data registry; however, the state’s submission did not meet the criteria for inclusion in the effective practices document because the state had not yet implemented the registry. In addition, while CMS suggests that states should oversee Medicaid managed care plan TPL activities, as applicable, the agency does not track which states delegate TPL responsibilities to Medicaid managed care plans, nor the problems with or oversight of related Medicaid managed care plan TPL activities in states that do. Officials from selected states also emphasized efficiencies and other benefits that could be gained from state collaboration and information sharing, which CMS could support. For example, Michigan officials noted that the state wanted to explore sharing the national coverage data it obtained from insurers, as well as the TPL tracking and billing system it developed, with other states, noting the cost-effectiveness of states using its system and data rather than each developing their own. In addition, officials in multiple states noted the value of CMS-facilitated national TPL conferences that provide states with opportunities to discuss emerging problems and share expertise regarding solutions. CMS officials indicated that the last conference occurred when there were significant changes under the DRA and that CMS has no specific plans to facilitate future TPL conferences, but officials noted that discussions were underway regarding additional conferences or other training opportunities. National survey data suggest that a substantial number of Medicaid enrollees—7.6 million—had private health insurance in 2012 and that many of these enrollees were in eligibility groups that incur, traditionally, higher medical costs. Furthermore, this number is expected to increase because of the Medicaid expansion. States have front-line responsibility for ensuring that Medicaid is the payer of last resort and are required to take steps to identify individuals with other health insurance and ensure that other insurance pays to the extent of its liability. Substantial increases in TPL cost savings in recent years highlight that improvements to TPL efforts, such as heightened attention to coverage identification, can substantially improve TPL cost avoidance and recoveries. The scale of the cost savings to Medicaid at both federal and state levels through the identification of coverage through, and payment of services by, private health insurance—reportedly nearly $14 billion in 2011—underscores the potentially significant return on investment that may be gained from continued TPL improvement efforts and attention to resolving remaining gaps in state access to available coverage data. Selected states have taken a variety of steps to further improve TPL efforts, and other states may also be implementing initiatives to address persistent challenges states report in ensuring Medicaid pays after other liable third parties. The various initiatives that selected states have undertaken—such as initiatives to improve identification of enrollees with private health insurance through data matches or to ensure that TPL efforts are maintained in an increasingly managed care environment— highlight options that other states could consider to improve their respective TPL savings. Other states may also have initiatives that could be adopted more broadly. CMS has taken steps to support states and publicize effective state practices. However, as new strategies emerge over time, a robust ongoing effort to collect and share information about state initiatives would ensure that states—particularly any states that may not conduct data matches with private insurers— are aware of available data matching strategies and solutions to challenges states or Medicaid managed care plans may face in conducting TPL activities. Given the significant federal Medicaid outlays, which are increasing as Medicaid expands under PPACA, the federal government has a vested financial interest in further increasing states’ TPL cost savings, and CMS should play a more active leadership role in monitoring, understanding, supporting and promoting state TPL efforts. In light of the federal interest in ensuring that Medicaid should pay only after other liable third parties; state initiatives to improve TPL efforts, such as coverage identification strategies; and states’ increasing use of managed care, we recommend that the Secretary of Health and Human Services direct CMS to take the following two additional actions to oversee and support state TPL efforts: Routinely monitor and share across all states information regarding key TPL efforts and challenges. Provide guidance to states on their oversight of TPL efforts conducted by Medicaid managed care plans. We provided a draft of this report to HHS for comment. In its written comments—reproduced in appendix III—HHS concurred with our recommendations. HHS stated that it will continue to look at ways to provide guidance to states to allow for sharing of effective practices and to increase awareness of initiatives under development in states. HHS also stated that it will explore the need for additional guidance regarding state oversight of TPL efforts conducted by Medicaid managed care plans. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. To assess the extent to which Medicaid enrollees have private health insurance, we utilized the ACS, an annual survey conducted by the U.S. Census Bureau. The ACS includes representative samples of households from each state and also includes individuals residing in institutions such as nursing homes. The ACS collects self-reported information, such as the type of health insurance coverage as of the date of the survey (if any), disability status, age, and state of residence. We analyzed data from the most recent ACS Public Use Microdata Sample (PUMS) that was available at the time we conducted our work, which covered calendar year 2012. Medicare is a federal health insurance program for individuals aged 65 and older or with certain disabilities and individuals with end-stage renal disease. TRICARE is a federal health program generally for active-duty military personnel and their dependents, and retirees and their dependents and survivors. Medicaid coverage was assigned to foster children, certain individuals receiving Supplementary Security Income or Public Assistance, and the spouses and children of certain Medicaid beneficiaries. Medicare coverage was assigned to individuals aged 65 and older who received Social Security or Medicaid benefits. TRICARE was assigned to active-duty military personnel and their spouses and children. that the ACS PUMS data were sufficiently reliable for the purposes of our engagement. From the available ACS PUMS data, we constructed the following variables for our analysis: Medicaid coverage and eligibility category. We defined individuals as having Medicaid if they reported health coverage through Medicaid, medical assistance, or any kind of government assistance plan for individuals with low incomes or a disability. These sources of coverage are combined in one question in the ACS PUMS. For purposes of the report, we refer to these individuals collectively as Medicaid enrollees. We further categorized Medicaid enrollees into four broad Medicaid eligibility categories—children, adults, disabled, and aged: We defined the child eligibility category as individuals aged 0 through 18 who did not report a disability. We defined adult eligibility category as individuals aged 19 through 64 who did not report a disability. We defined the disabled eligibility category as individuals aged 0 through 64 who reported one or more of the 6 disability indicators included in the ACS data. We defined the aged eligibility category as individuals aged 65 and older. Third-party private and public health coverage. We defined individuals as having private insurance coverage if they reported having health insurance through a current or former employer or union, insurance purchased directly from an insurance company, or both. We defined individuals as having public coverage other than Medicaid if they reported coverage through Medicare or TRICARE, or having ever used or enrolled in health care provided through the Department of Veterans Affairs (VA). Based on the variables defined above, we used calendar year 2012 ACS PUMS data to estimate the number and percentage of Medicaid enrollees with private and other sources of health coverage. We produced separate estimates by Medicaid eligibility group and state of residence. To generate our estimates, we applied the appropriate weights contained in the ACS PUMS data files in order to expand the sample to represent the total population and to account for the complex sample design. Specifically, we used the person weights to generate estimated numbers and percentages. We used the person replicate weights to generate standard errors. To assess the precision of our estimates, we calculated a relative standard error for each estimate. A relative standard error is calculated by dividing the standard error of the estimate by the estimate itself. For example, if an estimate has a mean of 100 and a standard error of 20, the relative standard error would be 20/100, which would be 20 percent. Estimates with small relative standard errors are considered more reliable than estimates with large relative standard errors. A small relative standard error is a more precise measurement since there is less variance around the mean. Unless otherwise noted, estimates included in this report have relative standard errors of less than 15 percent. The following tables provide more detailed information about the estimates derived from of our analysis of the 2012 American Community Survey (ACS) Public Use Microdata Sample (PUMS). Specifically, tables 1 and 2 provide estimates of the number and percentage of Medicaid enrollees with other sources of health coverage by Medicaid eligibility category and by state. In addition to the contact named above, Susan Anthony, Assistant Director; Emily Beller; George Bogart; Britt Carlson; Laurie Pachter; and Ying Long made key contributions to this report.","In fiscal year 2013, Medicaid—jointly financed by states and the federal government—provided health care coverage to over 70 million individuals at a total cost of about $460 billion. Congress generally established Medicaid as the health care payer of last resort, meaning that if enrollees have another source of health care coverage—such as private insurance—that source should pay, to the extent of its liability, before Medicaid does. This is referred to as third-party liability (TPL). There are known challenges to ensuring that Medicaid is the payer of last resort. GAO was asked to provide information on the prevalence of private insurance among Medicaid enrollees and on state and CMS efforts to ensure that Medicaid is the payer of last resort. This report examines (1) the extent to which Medicaid enrollees have private insurance, and (2) state and CMS initiatives to improve TPL efforts. GAO analyzed the 2012 ACS; interviewed Medicaid officials from eight states with high program spending or enrollment that used managed care; interviewed CMS officials and stakeholders; and reviewed relevant laws, regulations, and CMS guidance. Based on responses to the 2012 U.S. Census Bureau's American Community Survey (ACS)—the most recent available at the time the work was conducted—GAO estimates that 7.6 million Medicaid enrollees (13.4 percent) had private health insurance in 2012. The estimated prevalence of private health insurance varied among Medicaid eligibility categories, which may differ with respect to Medicaid benefits and costs. The number of Medicaid enrollees with private health insurance is expected to increase with the expansion of Medicaid. Selected states reported taking various steps to address challenges to ensuring that Medicaid is the payer of last resort and acknowledged recent Centers for Medicare & Medicaid Services (CMS) support, while also suggesting additional federal action. Four of the eight reviewed states reported various initiatives to improve coverage identification, such as arranging to participate in a data registry that allows participants to identify individuals with overlapping coverage. CMS has taken steps to issue TPL guidance and share some information on effective state practices, and such federal efforts should be ongoing to ensure that evolving approaches are captured and shared across states. In addition, officials in five states reported that enrollees with third-party coverage may be eligible to enroll in Medicaid managed care—in which states contract with health plans to provide services to enrollees and may delegate TPL activities such as payment recoveries to these plans. One of the five states had initiated a program to oversee plans' TPL recoveries, while other states did not report similar oversight. The National Association of Medicaid Directors reported that, in the absence of explicit CMS guidance in this area, it can be difficult for states to work with plans to improve TPL oversight and has recommended CMS provide such guidance. GAO recommends that the Secretary of the Department of Health and Human Services (HHS) direct CMS to (1) routinely monitor and share across all states information regarding key TPL efforts and challenges, and (2) provide guidance on state oversight of TPL efforts conducted by Medicaid managed care plans. HHS concurred with GAO's recommendations and noted plans to address them."
"The Elementary and Secondary Education Act (ESEA), as amended by the Every Student Succeeds Act (ESSA; P.L. 114-95 ), specifies the requirements for the state assessments that states must incorporate into their state accountability systems to receive funding under Title I-A. Title I-A of the ESEA authorizes aid to local educational agencies (LEAs) for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending elementary and secondary schools with relatively high concentrations of students from low-income families. As a condition of receiving Title I-A funds, states, LEAs, and public schools must comply with numerous requirements related to standards, assessments, and academic accountability systems. All states currently accept Title I-A funds. For FY2017, the program was funded at $15.5 billion. The ESEA requires that states implement high-quality academic assessments in reading, mathematics, and science. States must test all students in reading and mathematics annually in grades 3 through 8 and once in high school. States must also test all students in science at least once within three grade spans (grades 3-5, 6-9, and 10-12). The ESEA therefore requires states to implement annually, at a minimum, 17 assessments for students in elementary and secondary schools. While many of the assessment requirements of the ESEA have not changed from the requirements put into place by the No Child Left Behind Act (NCLB; P.L. 107-110 ), the ESSA provides states some new flexibility in meeting them. For example, states may choose to administer one summative assessment or multiple statewide interim assessments that result in a single summative score. For the first time, the ESSA allows states to use ""nationally recognized tests"" to meet the high school assessment requirement, provided there is evidence the tests align with state standards. It also includes provisions for states' use of alternate assessments for students with the ""most significant cognitive disabilities,"" which was previously addressed only in regulations. The ESSA explicitly authorizes the use of computer adaptive assessments. Computer adaptive assessments adjust to a student's individual responses, which means that all students will not see the exact same questions. The ESSA also authorizes an exception to state assessment requirements for 8 th grade students taking advanced mathematics in middle school that permits them to take an end-of-course assessment rather than the 8 th grade mathematics assessment, provided certain conditions are met. In addition, the ESSA authorizes a new demonstration authority for states to create an ""innovative assessment system"" that would permit them to use different assessment formats (e.g., competency-based assessments) and assessments that validate when students are ready to demonstrate mastery or proficiency, and allow for differentiated student support based on individual learning needs. The ESSA also includes a new provision that permits the Secretary of Education (the Secretary) to reserve a portion of funds available under the State Assessment Grant program to award competitive grants to states for assessment audits. The purpose of this report is to describe the general assessment requirements of the ESEA as amended and discuss the new flexibility states have in meeting these requirements. The report also discusses some issues related to the changes enacted by ESSA regarding the use of assessments in accountability systems that are receiving attention as they are implemented. More specifically, this report examines issues related to assessment of student growth, assessment of students with disabilities and English learners, the use of computer adaptive assessments, student assessment participation requirements, and testing burden. While these changes have the potential to add flexibility and nuance to state accountability systems, states face the challenge of implementing them in such a way as to maintain the validity and reliability of the required assessments. Students participate in many assessments in elementary and secondary schools. As mentioned above, the ESEA requires states to administer annually, at a minimum, 17 assessments collectively in reading, mathematics, and science. To meet this requirement, states typically use summative assessments. For reading and mathematics, the results of these assessments are then used in the state accountability system to differentiate schools based, in part, on student performance. In addition to these assessments, states, LEAs, and schools administer a number of other assessments for different purposes and within different content areas. The focus of this report is on the assessments required in Title I-A of the ESEA. Title I-A of the ESEA outlines the requirements for state assessment and accountability systems. Section 1111(b) specifically details the ""academic assessments"" requirements. While many of the requirements for academic assessments have not changed from the requirements put in place by the NCLB, a few changes are noteworthy. This section discusses the general state academic assessment requirements and highlights some of the changes made by the ESSA. It also discusses the State Assessment Grants program, including how funds are allocated to states. The section closes with a discussion of the Secretary's new ability to reserve funds under the State Assessment Grants program to make competitive grants to states for conducting assessment audits, and a new authority included in the ESSA related to the use of innovative assessments. This section of the report examines current ESEA assessment requirements with respect to the content areas and grades assessed, student participation, properties of the assessments, new assessment options, and public information about assessments. In each case, the discussion specifies whether current requirements existed prior to the implementation of the ESSA or whether they were added by the ESSA. Under the requirements of the ESEA both prior to and following the enactment of the ESSA, each state must implement a set of high-quality academic assessments in reading, mathematics, and science. Reading and mathematics assessments must be administered annually in grades 3 through 8 and once in high school. Science assessments must be administered at least once within three grade spans (grades 3-5, 6-8, and 9-12). Assessments in other grades and subject areas may be administered at the discretion of the state. All academic assessments must be aligned with state academic standards and provide ""coherent and timely"" information about an individual student's attainment of state standards and whether the student is performing at grade level. The reading and mathematics assessment results must be used in the state's accountability system to differentiate the performance of schools. For the most part, under the ESEA, the same academic assessments must be used to measure the achievement of all public elementary and secondary school students in a state. States are required to measure annually the achievement of not less than 95% of all students and 95% of all students in each subgroup on the required assessments. A state must explain how this requirement will be incorporated into its accountability system. As mentioned above, academic assessments must be the same academic assessments used to measure the achievement of all students, which includes most students with disabilities and English learners (ELs). Students with the ""most significant cognitive disabilities"" may participate in an alternate assessment aligned with alternate achievement standards. For ELs, under certain circumstances, assessments may be administered in the language and form that is most likely to produce accurate results. The ESSA added two new provisions related to a parent's right to opt a child out of the required assessments. First, it added a provision that provides that nothing ""shall be construed as preempting a state or local law regarding the decision of a parent to not have the parent's child participate in the academic assessments."" Second, the ESSA now requires any LEA receiving Title I-A funds to notify parents of their right to receive information about assessment participation requirements, which must include a policy, procedure, or parental right to opt the child out of state assessments. State assessments must meet several requirements regarding (1) format, (2) administration, and (3) technical quality. While a required assessment format is not specified, the ESEA continues to require that the assessment measures higher-order thinking skills and understanding. It also adds some examples of how this requirement may be met, which may include measures of student growth and ""may be partially delivered in the form of"" portfolios, projects, or extended performance tasks. The ESSA provides some new flexibility regarding the administration of state assessments. Prior to its enactment, states were required to administer a single, summative assessment to meet the requirements of Title I-A. Under the ESEA as amended by the ESSA, states have the option of using a single, summative assessment or multiple statewide interim assessments that result in a single summative score. The ESSA also includes a new provision that allows each state to set a target limit on the amount of time devoted to the administration of assessments for each grade, expressed as a percentage of annual instructional hours. States must continue to provide evidence that academic assessments are of adequate technical quality for each purpose required under the ESEA. Prior to the enactment of the ESSA, states were required to provide this evidence to the Secretary and make it public upon the Secretary's request. Under the ESEA as amended by the ESSA, states are now required to include such evidence on the state education agency's (SEA's) website. As required prior to the enactment of the ESSA, state assessments must be used for purposes for which they are valid and reliable and must be consistent with nationally recognized professional and technical standards. They must also ""objectively measure academic achievement, knowledge, and skills."" To increase the likelihood of valid and reliable results, the ESSA continues to require that states use ""multiple up-to-date measures"" of academic achievement. The ESSA explicitly authorizes two new assessment options to meet the requirements discussed above. First, in selecting a high school assessment for reading, mathematics, or science, an LEA may choose a ""nationally-recognized high school academic assessment,"" provided that it has been approved by the state. To receive state approval, the nationally recognized high school assessment must (1) be aligned to the state's academic content standards; (2) provide comparable, valid, and reliable data as compared to the state-designed assessments for all students and each student subgroup; (3) meet all general requirements for state assessments, including technical quality; and (4) provide for unbiased, rational, and consistent differentiation between schools in the state. Second, the ESSA explicitly authorizes the use of ""computer adaptive assessments"" as state assessments. Previously, it was unclear whether computer adaptive assessments met the requirement that statewide assessments be the same assessments used to measure the achievement of all elementary and secondary students. Computer adaptive assessments adjust to a student's individual responses, which means that all students will not see the exact same questions. The ESSA added language clarifying that students do not have to be offered the same assessment items on a computer adaptive assessment. Computer adaptive assessments, however, must meet one explicit requirement beyond the general requirements of state assessments. The computer adaptive assessment must, at a minimum, measure each student's academic proficiency in state academic standards for the student's grade level and growth toward such standards. Once the assessment has measured the student's proficiency at grade level, it ""may"" measure the student's level of academic proficiency above or below the student's grade level. The ESSA also authorized an exception to state assessment requirements for 8 th grade students taking advanced mathematics in middle school. These students are now permitted to take an end-of-course assessment rather than the 8 th grade mathematics assessment, provided certain conditions are met. For example, a student benefitting from this exception must take a mathematics assessment in high school that is more advanced than the assessment taken at the end of 8 th grade. The ESSA added specific requirements that each LEA receiving funds under Title I-A must provide information to the public regarding state assessments. More specifically, for each grade served by the LEA, it must provide information on (1) the subject matter being assessed, (2) the purpose for which the assessment is designed and used, (3) the source of the requirement of the assessment, (4) the amount of time students will spend taking assessments, (5) the schedule of assessments, and (6) the format for reporting results of assessments (if such information is available). While this report focuses on the assessments required by the ESEA, the assessments are used in a state accountability system that determines which schools will be identified for support and improvement based on their performance. Prior to the implementation of the ESSA, states were required to determine whether schools and LEAs were making adequate yearly progress (AYP) based on the percentage of all students and the percentage of students by subgroup who (1) scored at the proficient level or higher on the mathematics and reading assessments, (2) met the requirements of an additional academic indicator, which had to be a graduation rate for high school students, and (3) met an assessment participation rate. The failure of the all students group or any subgroup to meet any of these requirements for two consecutive years or more triggered a set of outcome accountability consequences that required schools and LEAs to take actions specified in statutory language. As states were required to establish goals for proficiency on the mathematics and reading assessments based on 100% of students reaching the proficient level by the end of the 2013-2014 school year, as that deadline drew closer, more schools and LEAs failed to meet at least one of the requirements to make AYP. Thus, under the accountability system prior to the enactment of the ESSA, it was possible that based on student assessment results, all or most LEAs and schools in a state could fail to make AYP and be required to implement various improvement requirements. This system of making outcome accountability decisions based on assessment results was considered a high-stakes assessment system, as poor performance on either the mathematics or reading assessment by the all students group or any individual subgroup could trigger consequences. Under the ESEA following the enactment of the ESSA, changes have been made to the accountability system that could lessen the high-stakes association between student assessment results and the determination of whether a school is identified for improvement, depending on decisions made by the state in designing its accountability system. Under the ESSA, student proficiency on the mathematics and reading assessments is still considered in the state accountability system along with several other indicators. Based on these indicators, the SEA must annually establish a system for ""meaningfully differentiating"" all public schools. The system must also identify any public school in which any subgroup of students is ""consistently underperforming,"" as determined by the state. The results of this process are used to help determine which public schools need additional support to improve student achievement. Based on this system of meaningful differentiation, an SEA informs LEAs in its state which low-achieving schools within the LEA require comprehensive support and improvement. More specifically, SEAs are required to identify for comprehen sive support and improvement: (1 ) at least the lowest-performing 5% of all school s receiving Title I-A funds, (2 ) all public high schools failing to graduate 67% or more of their students, (3 ) schools required to implement additional targeted support that have not improved in a state-determined number of years, and (iv) additional statewide categories of schools, at the state's discretion. States must also inform LEAs whether there are subgroups of ""consistently underperforming"" students within a school that have been identified for targeted support and improvement. Depending on how a state chooses to identify schools for comprehensive or targeted support and improvement, the number or percentage of schools in a given state that may be subject to outcome accountability requirements may be substantially lower than the number or percentage of schools that were subject to outcome accountability requirements prior to the enactment of the ESSA. Thus, as a result of the changes made by the ESSA, the high-stakes emphasis placed on assessment in the accountability system may be diminished relative to the emphasis place on assessment prior to the enactment of the ESSA. No longer does poor overall student performance or subgroup performance on an assessment have to mean that a school is automatically identified as being in need of improvement. States determine how much weight to put on assessment results in the accountability system and the extent to which schools will be identified for comprehensive or targeted support and improvement as a result of their performance on all of the indicators included in the state accountability system. The ESEA continues to authorize funding for State Assessment Grants. Two funding mechanisms continue to be authorized: (1) formula grants to states for the development and administration of the state assessments required under Title I-A, and (2) competitive grants to states to carry out related activities beyond the minimum assessment requirements. The allocation of funds depends on a ""trigger amount"" within the legislation. For annual appropriations at or below the trigger amount, the entire appropriation is used to award formula grants to states. For an annual appropriation above the trigger amount, the difference between the appropriation and trigger amount is used to award competitive grants to states. For amounts equal to or less than the trigger amount, the Secretary must reserve 0.5% of the appropriation for the Bureau of Indian Education and 0.5% of the appropriation for the Outlying Areas prior to awarding formula grants to states. The Secretary has the option of reserving 20% of the funds appropriated to make grants for assessment system audits. After making these reservations, the Secretary then provides each state with a minimum grant of $3 million. Any remaining funds are subsequently allocated to states in proportion to their number of students ages 5 to 17. Any funds appropriated in excess of the trigger amount are awarded by the Secretary to states and consortia of states through a competitive grant process. The funds are then used for assessment activities. The ESEA as amended by the ESSA permits the Secretary to reserve funds from the formula grant portion of the State Assessment Grant program to make grants to states to conduct an assessment system audit. As previously noted, the Secretary may reserve up to 20% of the funds appropriated for state assessment formula grants for the purpose of conducting these audits. From the funds reserved, the Secretary makes annual grants to states of not less than $1.5 million to conduct a state assessment system audit and to provide subgrants to LEAs to conduct assessment audits at the LEA level. To receive a grant under this section, a state must submit an application to the Secretary detailing the assessment system audit, planned stakeholder participation and feedback, and subgrants to LEAs. Each state must ensure that LEAs conduct an audit of local assessments. Following the audit, each state is required to develop a plan to improve and streamline the state assessment system by eliminating unnecessary assessments, supporting the use of best practices from LEAs in other areas of the state, and supporting LEAs in streamlining local assessment systems. The state is required to report the results of the state and each LEA audit in a format that is publicly available. The ESEA as amended by the ESSA includes a new demonstration authority for the development and use of an ""innovative assessment system."" States or consortia of states may apply for the demonstration authority to develop an innovative assessment system that ""may include competency-based assessments, instructionally embedded assessments, interim assessments, cumulative year-end assessments, or performance based assessments that combine into an annual summative determination for each student"" and ""assessments that validate when students are ready to demonstrate mastery or proficiency and allow for differentiated student support based on individual learning needs."" A maximum of seven SEAs, including not more than four states participating in consortia, may receive this authority. Separate funding is not provided under the demonstration authority; however, states may use formula and competitive grant funding provided through the State Assessment Grant program discussed above to carry out this demonstration authority. States and consortia may apply for an ""initial demonstration period"" of three years to develop innovative assessment systems and implement them in a subset of LEAs. If the initial demonstration period is successful, states and consortia may apply for a two-year extension in order to transition the innovative assessment system into statewide use by the end of the extension period. If the SEA meets all relevant requirements and successfully scales the innovative assessment system for statewide use, the state may continue to operate the innovative assessment system. In general, applications for innovative assessment systems must demonstrate that the innovative assessments meet all the general requirements of state assessments discussed above. The only explicit differences between state assessment systems and innovative assessment systems are the format of assessment (i.e., competency-based assessments, instructionally embedded assessments, interim assessments, cumulative year-end assessments, and performance-based assessments) and that the reporting of results can be expressed in terms of ""student competencies"" aligned with the state's achievement standards. Both prior to and following the enactment of the ESSA, states have had the authority to select their own assessments and the academic content and performance standards to which the assessments must be aligned. For reading and mathematics assessments administered in grades 3-8, states use state-specific assessments, common assessments used by multiple states, or a combination of the two. For these subjects at the high school level, states use state-specific assessments, common assessments, and end-of-course assessments administered to all students. For science assessments, states can continue to use (1) state-specific assessments, (2) end-of-course exams for courses like biology or chemistry, or (3) a combination of the state-specific assessments and end-of-course exams. The ESSA added a new option for high school assessments, allowing states to use a ""nationally recognized"" high school academic assessment. While the state assessment landscape is constantly changing, examples of how states are currently meeting the ESEA assessment requirements are provided in the discussion that follows. When the NCLB was enacted in 2002, it expanded the number and role of state assessments required by the ESEA. Under the NCLB, each state developed and administered state-specific assessments aligned with state-specific academic content and performance standards. This resulted in each state having its own set of academic assessments, academic content standards, and academic performance standards denoting various levels of proficiency. Because each state had its own system, there was no straightforward way to compare student performance across states. In 2009, due in part to this lack of standardization, there was a grassroots effort led by the National Governors Association (NGA) and the Council of Chief State School Officers (CCSSO) to develop a common set of standards for reading and mathematics, known as the Common Core State Standards Initiative (CCSSI). This effort intended to create a set of college- and career-readiness standards that express what students should know and be able to do by the time they graduate from high school. Having common content and performance standards and aligned assessments could be used to facilitate comparisons among states using the same standards and assessments. Adoption of these standards by states is optional. While the federal government had no role in developing the standards, the Obama Administration expressed support for the standards and took three major steps to incentivize their adoption and implementation: (1) Race to the Top (RTT) State Grants, (2) RTT Comprehensive Assessment Systems (CAS) Grants, and (3) the ESEA flexibility package. Under the RTT State Grants program, participating states were required to ""develop and implement common, high-quality assessments aligned with common college- and career-ready K-12 standards."" To support the development of the required assessments included in the RTT State Grants program, the Department of Education (ED) created the RTT CAS Grant program and provided funds to two consortia of states for ""the development of new assessment systems that measure student knowledge and skills against a common set of college- and career-ready standards."" Both winning consortia, the Partnership for Assessment of Readiness for College and Careers (PARCC) and the Smarter Balanced Assessment Consortium (SBAC), proposed to use the Common Core State Standards as the common standards to which their assessments would be aligned. At the time the grants were awarded, 25 states and the District of Columbia were part of the PARCC coalition and 31 states were part of the SBAC coalition. In 2011 the Obama Administration announced the availability of an ESEA flexibility package that allowed states to receive waivers of various ESEA provisions if they adhered to certain principles. One of these principles was having college- and career-ready expectations for all students, including adopting college- and career ready standards in reading and mathematics and aligned assessments. While it is not possible to know how many states may have ultimately adopted the Common Core State Standards or the assessments developed by PARCC or SBAC without the aforementioned federal incentives, initial interest and participation in the common assessment administration was high, followed by declining participation in later years. In addition to supporting the use of common standards, both the George W. Bush and Obama Administrations also supported measuring student achievement based on growth rather than proficiency only. ED encouraged states to incorporate measures of student growth into their state accountability systems through two sets of waivers. The first set was announced under the George W. Bush Administration in 2005. The growth model pilot waiver allowed states to add measures of student growth to their accountability systems to make determinations of adequate yearly progress (AYP). The Obama Administration subsequently required that states' assessments measure student growth in at least grades 3-8 and once in high school in order to receive waivers of various ESEA requirements. Two organizations, the Education Commission of the States (ECS) and Education Week, collect data on the types of assessments being used by states to meet the requirements of Title I-A. ECS collects information from state departments of education and tracks state assessment administration. The most recent information collection was published in January 2017. Education Week conducts an annual survey of current state assessment administration. The most recent information was published in February 2017. Thus, both surveys reflect the state of assessment prior to states submitting their state plan under the provisions of the recently amended ESEA. Based on the data collected by these organizations, about half of all states reported using only state-specific assessments and end-of-course assessments in school year 2015-2016. Some states reported using a combination of common assessments, state-specific assessments, end-of-course exams, and nationally recognized high school academic assessments. For example, Michigan used a combination of state-specific assessment items and SBAC assessment items. Louisiana and Massachusetts state-level officials have approved a similar, blended approach. In these three examples of blended approaches, Michigan used the PSAT as a high-school assessment, Massachusetts used a state-specific assessment, and Louisiana used end-of-course assessments. Other states relied entirely on common assessments in the 2015-2016 school year. Seven states reported using only SBAC assessments, and four states reported using only PARCC. The current status of state assessment systems is in flux as states have been submitting their ESEA consolidated state plans to receive funding under a number of ESEA formula grant programs, including Title I-A, in 2017. Each state's plan must be approved by the Secretary. All 50 states, the District of Columbia, and Puerto Rico were required to submit ESEA state plans to ED by one of two deadlines (April 3, 2017, or September 18, 2017) to continue to receive funding under various ESEA formula grant programs, including Title I-A. ED maintains a website of state plans submitted for approval under the ESEA. Within the state plans, each state details the state assessments it will use to meet the Title I-A requirements. Based on information available from state plans that were approved by October 16, 2017, states have indicated that they expect to use combinations of assessments, such as SBAC, end-of-course assessments, and PSAT/SAT (e.g., Delaware and Nevada), or to rely primarily on state-specific annual assessments (e.g., New Jersey and New Mexico). Several of the changes included in the ESEA as amended by the ESSA provide states with more flexibility with respect to using assessment for accountability purposes. Many of the changes have the potential of adding nuance to state accountability systems. For state accountability systems to function effectively, however, the changes to the requirements of Title I-A must be implemented in such a way as to retain the validity and reliability of state assessments and not to detract from the value or accuracy of state accountability systems. It remains important to understand how the measurement of student achievement with assessments affects determinations made by the state accountability systems. This section of the report includes a discussion of several assessment-related issues that have garnered attention in relation to ESSA-enacted changes. These include issues related to assessment of student growth, assessments for students with special needs, computer adaptive assessments, student opt-out practices, and testing burden. The discussion identifies ways in which ESSA-enacted adjustments are intended to enhance the use of assessments in accountability systems and/or facilitate the ease of operating such systems. Some topics related to valid and reliable uses of assessment for purposes of accountability which may be relevant to these adjustments are discussed as well. These topics are ones that have surfaced in the reauthorization discourse or in the years in which NCLB provisions were in effect. They are presented not to forecast problems, but rather to explain some challenges that may have to be navigated and to identify some inherent tensions in using assessments in accountability systems. These issues may bear monitoring as ESSA-enacted adjustments are deployed. Prior to the enactment of the ESSA, state accountability systems were only required to report student proficiency, a static measure of student achievement. A singular focus on proficiency has been criticized for many reasons, most notably that proficiency may not be a valid measure of school quality or teacher effectiveness. Often, proficiency is a measure of factors outside of the school's control (e.g., demographic characteristics, prior achievement). One of the unintended consequences of static measures, like proficiency level, was the way instruction may have been targeted toward students just below the proficient level, possibly at the expense of other students. In an effort to raise the percentage of proficient students, schools and teachers may have targeted instructional time and resources toward those students who were near the proficiency bar. Because time and resources are limited, fewer instructional resources may have been available for students who were far below proficiency or those who were far above proficiency. Under the ESEA as amended by the ESSA, states, LEAs, and schools are still required to report data on student proficiency on the required assessments. Some education policy groups have argued for a different way to report static achievement than has been used in the past. They have asserted that by continuing to focus only on proficiency, more emphasis will continue to be placed on students just below the level of proficiency. Some education policy groups have advocated instead for the use of a ""performance index"" for static measures. Using a performance index, states can get credit for reaching various levels of achievement (e.g., 0.75 points for partial proficiency, 1 point for reaching proficient, 1.25 points for reaching advanced levels). By using a performance index, some say, schools would have an incentive to try to increase the achievement of all students. Another way to report static achievement in a way that represents all students would be to report average scale scores. Scale scores are much more sensitive to changes in achievement than proficiency levels. They also have better statistical properties for research and analysis. Scale scores exist along a common scale so that they can be compared across students, subgroups, schools, and so forth. By placing assessment results along a common scale, changes over time can be determined more accurately. To address some of the concerns raised about relying only on proficiency as a measure of student academic achievement on required assessments, the ESEA as amended by the ESSA specifically provides the option for student achievement to be measured using student growth as well. Prior to the enactment of the ESSA, some states had already incorporated specific measures of student growth into their accountability systems after obtaining a waiver from ED to do so. Under the ESEA as amended by the ESSA, additional states may choose to incorporate measures of student growth into their accountability systems, while other states may choose to revise their student growth measures. The type of growth model selected for a state accountability system depends on many different factors beyond the type of assessment measure used. The selection of an assessment, however, can limit the choices states have in developing and implementing growth models. The remainder of this section discusses different types of growth models currently used by states and the assessment requirements of such models. Measuring growth takes several forms. A review of 29 state accountability systems that use student growth identified three types of growth models: State-set targets of student growth (14 states): State-set targets measure the degree to which a student meets a set amount of growth or reaches a performance benchmark. Student growth percentiles (SGPs) (12 states): SGPs examine a student's academic achievement relative to academic peers who began at the same place. An SGP is a number from 1 to 99 that represents how much growth a student has made relative to his or her peers. An SGP of 85 would indicate that a student demonstrated more growth than 85% of peers. SAS EVAAS (3 states): This model measures value-added growth. ""Value-added growth"" refers to the additional positive effect that a certain factor has on student achievement above what is considered ""expected"" growth. This type of growth model follows students over time and provides projection reports on a student's future achievement. The CCSSO also released a paper that outlines many considerations in the development and implementation of growth models in ESEA accountability systems. In this analysis, five common growth models were identified. These models are briefly described below, including information on their assessment requirements: Gain scores: Gain scores are calculated by finding the difference between test scores. Using scale scores, the results of an earlier score (e.g., 3 rd grade mathematics) is subtracted from the results of a later score (e.g., 4 th grade mathematics). In terms of assessment, the use of gain scores requires a vertical scale that creates a common scale across grade levels. Growth rates: Growth rates are calculated by using multiple results of student assessment and statistically fitting a ""trend line"" across the data points. In order to aggregate the data across multiple grade levels, the growth rate may require vertically scaled scores. Student growth percentiles: As mentioned above, SGPs examine academic achievement compared to a student's peers who start at the same achievement level. These scores are based on the percentage of academic peers that a student outscores. Scores are reported as percentiles (i.e., 1-99). Because SGPs compare growth to peers who participated in the same assessment at the same time, a vertically scaled assessment is not necessarily a requirement. Transition tables: Transition tables use growth in discrete ""performance levels"" (i.e., levels of proficiency, such as basic, proficient, and advanced). These calculations are less precise but can be aggregated across grade levels without using vertically scaled scores. Residual models: Residual models are also referred to as ""value-added"" models. This type of model can describe the effect of outside factors on student growth over time (e.g., teacher or school influence on student learning). Residual models compare the performance of a class, school, or LEA to the average expected change. These models can be aggregated across grades without a vertical scale; however, there are other significant data requirements, such as the ability to link student data to teachers, schools, and LEAs. Some education policy groups have cautioned against using a type of growth model that measures ""growth to proficiency."" The ""growth to proficiency"" model measures whether students are on-track to meet a proficient or higher performance standard (e.g., proficient or advanced). Using this type of model, there would be no difference between a student who moved from ""not proficient"" to ""proficient"" and a student who moved from ""not proficient"" to ""advanced."" This type of growth model would create the same incentive to focus instruction on students near the proficiency score. Students far below or above the level of proficiency may not receive appropriate attention. If states choose a ""growth to proficiency"" model, however, there may be ways to weight certain types of growth. Similar to a performance index, growth from ""not proficient"" to ""proficient"" could be assigned a point value and other types of growth could be assigned lower or higher points, depending on the design of the system. By measuring student growth, accountability systems are better suited to evaluate student learning over time. Measuring the amount of learning within a given school year may be a more valid measure of school accountability than proficiency, because a student's prior level of achievement can be taken into account. Under some growth models, schools would not be penalized for certain low achieving students, provided that the students are meeting growth targets set by the accountability system. This type of growth model may be a more valid measure of factors within the school's control (e.g., classroom practices, teacher, leadership, school climate, etc.). Measuring growth targets, however, is dependent on reliable assessments that are sensitive to student learning over time. The ESEA requires that all students participate in annual academic assessments. There are, however, special provisions for how to include students with special needs, including students with disabilities and ELs. For example, a subset of students with disabilities may participate in an alternate assessment, but the use of alternate assessment in state accountability systems is limited. In addition, ELs may be included in state accountability systems in different ways depending on how long they have been in the United States and their level of English language proficiency. This section explores how various assessments for students with special needs are included in state accountability systems. As was required prior to the enactment of the ESSA, states must include all students with disabilities in the statewide assessment system. Furthermore, states must disaggregate assessment results for students with disabilities. The majority of students with disabilities participate in regular academic assessments with their peers. The ESEA, however, requires states to adhere to several assessment practices to ensure that students with disabilities fully participate in state assessment systems. First, the ESEA as amended by the ESSA requires that state assessments ""be developed, to the extent practicable, using the principles of universal design for learning"" (UDL). UDL is an inclusive framework that can be used in the development of assessments and instructional materials. In general, UDL is based on three principles: (1) providing multiple means of representation, (2) providing multiple means of action and expression, and (3) providing multiple means of engagement. UDL can be used to reduce unnecessary cognitive burden in the assessment process. For example, UDL helps to limit the use of complex language (e.g., using ""primary"" vs. ""most important,"" the use of figurative language) and visual clutter (e.g., too much information on a page, unusual font style). Second, the ESEA continues to require that states allow ""appropriate accommodations"" for students with disabilities. Accommodations are intended to increase the validity of the assessment of these students. For example, if a student has a learning disability in the area of reading, he or she may receive a ""read aloud"" accommodation on a test of mathematics ability. Because the assessment is measuring mathematics, the student's reading difficulty should not interfere with the measurement of his or her mathematics ability. Without an accommodation, the student's mathematics score may be lower than his or her true ability. If, on the other hand, the student is taking a test of reading comprehension, the ""read aloud"" accommodation may not be appropriate because it may inaccurately increase the student's reading score. Third, the ESSA amended the ESEA to allow for the use of an alternate assessment aligned with alternate standards for students with the ""most significant cognitive disabilities."" While the Individuals with Disabilities Education Act (IDEA) includes provisions regarding the identification of students with disabilities, it does not mention students with the ""most significant cognitive disabilities"" as a specific disability category under the law. As such, states must develop guidelines to identify students as those with the ""most significant cognitive disabilities."" A student's Individualized Education Program team (IEP team) applies the state guidelines to determine whether the student will participate in the alternate assessment. Determinations are made on a case-by-case basis. If it is determined that a student may participate in an alternate assessment, his or her parents must be informed of the decision and how participation in an alternate assessment may affect the receipt of a regular high school diploma. Students who are found eligible to participate in the alternate assessment are often those identified with intellectual disabilities, autism, or multiple disabilities. A state may provide an alternate assessment aligned with alternate achievement standards provided that the total number of students assessed in each content area does not exceed 1% of all tested students in the state. The ""1% cap"" applies only at the state level; there is no LEA-level cap. However, any LEA that assesses more than 1% of the total number of students assessed in a content area using the alternate assessment must submit information to the SEA justifying the need to do so. The state is then required to provide ""appropriate oversight, as determined by the State"" of any such LEA. If a state exceeds the 1% cap, scores from the assessments over the cap are counted as nonproficient in the state accountability system. An alternate assessment based on alternate achievement standards is considered a more valid assessment of students with the most significant cognitive disabilities because the alternate achievement standards are better aligned with the academic content standards for students in this group. If students with the most significant disabilities participate in the general assessment, they may be assessed on the full range of grade-level standards, which may not reflect the content they are learning. While the alternate assessment may be a more valid assessment of students with the most significant cognitive disabilities, there may be specific issues of reliability to consider. For example, many alternate assessments are given in a different format, such as portfolio assessments, rating scales, or item-based tests. These test formats are often scored against a rubric that reflects how well a student mastered the alternate achievement standard. Using this type of assessment scoring, issues of inter-scorer agreement may be particularly important to preserving the validity of the accountability system. If different scorers do not rate student performance consistently and with reliability, the validity of the achievement score may be questionable and an incorrect number of students with the most significant cognitive disabilities may be counted as ""proficient"" in the accountability system. States must include all ELs in the statewide assessment system and disaggregate results for these students. ELs participate in statewide assessment and accountability systems in different ways, depending on their level of language proficiency and number of years of schooling in the United States. There are two separate types of assessments for ELs: (1) assessments of English language proficiency (ELP) and (2) statewide assessments of reading, mathematics, and science that are required for all students. As was required prior to the enactment of the ESSA, states must ensure that all LEAs provide an annual assessment of English language proficiency of all ELs. The assessment must be aligned to state English proficiency standards within the domains of speaking, listening, reading, and writing. For ELP assessment purposes, most states currently participate in the WIDA consortium, which serves linguistically diverse students. The consortium provides for the development and administration of ACCESS 2.0, which is currently the most commonly used test of English language proficiency. In 2017, the WIDA consortium changed the achievement standards for English language proficiency to reflect the language demands of college- and career-readiness standards. As a result, some states are experiencing declines in reported English language proficiency levels and have fewer students exiting the school support programs for ELs. This means that more EL students may be included in accountability determinations for the EL subgroup for longer periods of time. As was also required prior to the enactment of the ESSA, states must generally provide for the inclusion of ELs in statewide assessments of reading, mathematics, and science. Similar to the provision for students with disabilities, the ESEA provides for ""appropriate accommodations"" for ELs and allows states to administer, ""to the extent practicable,"" assessments in the language that is most likely to yield accurate results. The ESEA continues to require a state to assess an EL in English once the student has attended school in the United States for three or more consecutive years. An LEA, however, may decide on a case-by-case basis to assess an EL in a different language for an additional two consecutive years if the student has not reached a level of English language proficiency that allows for participation in an English language assessment of reading. The assessment of an EL in a different language may yield more accurate results for some students. As previously permitted prior to the enactment of the ESSA, a state may exclude an EL from one administration of the reading assessment if he or she has been enrolled in school in the United States for less than 12 months. The ESSA added a second option regarding the assessment of recently arrived EL students: a state may assess and report the performance of such a recently arrived EL on the statewide reading and mathematics assessments, but exclude that student's results for the purposes of the state's accountability system. If a state selects the latter option, it is required to include a measure of student growth on these assessments in the student's second year of enrollment and a measure of proficiency starting with the third year of enrollment for the purposes of accountability. The results of statewide academic assessments must be disaggregated for ELs. A state may now include the scores of formerly identified ELs in the EL subgroup for a period of four years after the student ceases to be identified an EL. That is, once an EL becomes proficient in English, his or her score may still be included in the ""EL subgroup"" for reading and mathematics for four years. Prior to the enactment of the ESSA, an EL that had attained proficiency in English had his or her score included in the EL subgroup for two years. Because the English language proficiency standards for many states' tests have changed, it may take longer for ELs to exit the subgroup. This change in the way EL proficiency is determined and the ability of a state to include the performance of former ELs in the EL subgroup for four years means that many ELs may remain in the EL subgroup for accountability purposes for a longer time. It is possible, therefore, that the performance of the EL subgroup improves because students presumably have higher levels of English language proficiency as time goes on. The ESSA has changed the population of the students who are included in the EL subgroup, which may increase the performance of the subgroup. Because the population of the subgroup has changed, there may be inconsistency in the performance of the EL subgroup across time as states transition from NCLB accountability systems to ESSA accountability systems. The ESEA as amended by the ESSA explicitly authorizes the use of computer adaptive assessments to meet the requirements under Title I-A. Prior to the enactment of the ESSA, it was unclear whether computer adaptive assessments were allowed due to the requirement that statewide assessments be ""the same academic assessments used to measure the achievement of all public elementary school and secondary school students in the State."" One property of computer adaptive assessments is that they adjust to a student's individual ability, which means that all students do not receive the same assessment items. The ESSA, therefore, added clarifying language that specifies that the requirement that all assessments be ""the same"" ""shall not be interpreted to require that all students taking the computer adaptive assessment be administered the same assessment items."" A computer adaptive assessment works by adjusting to a student's individual responses. If a student continues to answer test items correctly, the assessment administers more difficult items. The items will continue to get more difficult until the student reaches a ""ceiling."" A ceiling in assessment is reached when a student either (1) completes all of the most difficult assessment items (i.e., the ceiling of the assessment itself) or (2) answers a number of assessment items incorrectly (i.e., the ceiling of the student's ability). Because the assessment items are adaptive, a computer adaptive assessment can measure a student's ability above or below grade level. The ESEA requires that computer adaptive assessments must measure, at a minimum, a student's academic proficiency based on state academic standards for the grade level of the student. After measuring a student's grade level proficiency, the assessment may also measure proficiency above and below the student's actual grade level. Computer adaptive assessments are also required to measure student growth. The ESEA authorizes their use for alternate assessments for students with the most significant cognitive disabilities and English language proficiency assessments for ELs. Due to the adaptive nature of these assessments, there have been several areas of concern about using them for statewide academic assessments. First, because computer adaptive assessments generally require students to reach a ceiling, it is possible that the administration time may be longer than a traditional assessment for high-achieving students. However, some states that use computer adaptive assessments find that they are more time efficient than traditional tests. Another concern is the accurate measurement of special populations, such as students with disabilities and ELs. Special populations are more likely to have inconsistent knowledge within a content area. That is, they may not have mastered all the lower skills in a subject area, though they may have partial mastery of higher-level skills. If a student reaches the ceiling on the lower skills, he or she would not have the opportunity to demonstrate partial mastery of the higher-level skills. Some have also expressed concern that computer adaptive assessments may test a student's computer literacy skills instead of the content areas of reading and mathematics. If a student's computer literacy interferes with the measurement of reading and mathematics proficiency, the assessment result would not be a valid representation of what the student knows and can do. Other issues that have been raised related to computer adaptive assessments (as well as nonadaptive computer assessments) focus on technical, financial, and reporting issues. For example, a school using computer adaptive assessments has to have computers available to students, may have to purchase software, needs to have technical staff available to set up the assessments and troubleshoot problems that may arise during the assessment process, and may need to provide training to teachers on the use of these assessments. At the same time, depending on the nature of the test items, computer assessments can generally be scored more quickly than paper-and-pencil assessments, providing teachers with more immediate feedback on student performance. A key provision of statewide assessment systems is the requirement to assess all students. This requirement is enforced through the reporting of student assessment results in the accountability system. States are required to annually measure the achievement of at least 95% of all students and 95% of all students in each subgroup. When at least 95% of assessment results are reported within the accountability system, the conclusions based on these assessment results are more likely to be valid and reliable for differentiating schools based on academic achievement. A school cannot solely decide whether students participate in academic assessments, as parents have rights concerning the participation of their children. There are two separate provisions that were enacted through the ESSA regarding parental rights in the assessment process. First, at the parent's request, the ESEA now requires the LEA to provide information on student participation in assessments and to include any policy, procedure, or parental right to opt the child out of the assessment. Second, the ESEA now explicitly states that nothing in the assessment requirements ""shall be construed as preempting a State or local law regarding the decision of a parent not to have the parent's child participate in the academic assessments."" Thus, if a state or local law regarding opt-outs exists, the assessment requirements of the ESEA as amended by the ESSA cannot preempt it. Although excessive numbers of opt-outs may have consequences for accountability, the primary focus of this discussion is the consequences for assessment itself. Excessive numbers of opt-outs may undermine the validity of the measurement of student achievement and, by extension, may undermine the validity of the state accountability system. Validity may be undermined because a large number of opt-outs could create a scenario in which states are measuring student achievement that is not representative of the whole student population. To explore this issue, it is important to understand a few basic statistical terms. In statewide assessment systems under the ESEA, states are required to assess the universe of students—that is, all students . In education research, it is more common to assess a representative sample of students. A representative sample of students is carefully selected from the universe of students, and the sample reflects the whole population in terms of certain demographic characteristics (e.g., gender, race/ethnicity, socioeconomic status, disability status, EL status). In a representative sample, students with desired demographic characteristics are randomly selected in specific proportions to represent the entire population. In statewide assessment systems under the ESEA, states are not permitted to select a representative sample of students. Because the ESEA requires that states assess the universe of students, large numbers of students opting out of the assessment may create an unrepresentative sample . Parents of students who choose to opt out are likely not randomly distributed across all demographic characteristics; therefore, it may create an unrepresentative sample. If a state assesses an unrepresentative sample of students, the assessment results used in its accountability system would not accurately reflect the true achievement of the population as a whole (i.e., the universe). Both prior to and following the enactment of the ESSA, the ESEA has required states to administer 17 annual assessments across three subject areas (reading, mathematics, and science). These requirements have been implemented within a crowded landscape of state, local, and classroom uses of educational assessments. The emphasis on educational assessment within federal education policies, which has coincided with expanded assessment use in many states and localities, has led to considerable debate about the amount of time being spent taking tests and preparing for tests in schools. One common criticism of test-based accountability is that it leads to a narrowing of the curriculum. There are several ways this could occur. First, the time spent administering the actual assessments, sometimes called the ""testing burden,"" could take away from instructional time. Second, test-based accountability may lead to increases in test preparation in the classroom, which also takes away from instructional time. There is some evidence to suggest that teachers feel pressure to ""teach to the test"" and engage in test preparation activities at the expense of broader, higher-level instruction. Test-preparation activities take several forms, including emphasizing specific content believed to be on the assessments, changing classroom assignments to look like the format of the assessments, or presenting test taking strategies. Third, in test-based accountability systems, teachers report reallocating instructional time toward tested subjects and away from nontested subjects. Surveys of teachers have consistently reported that their instruction emphasizes reading and mathematics over other subjects like history, foreign language, and the arts. Test preparation can take many forms, and it is difficult to distinguish appropriate test preparation from inappropriate test preparation. Many schools provide test preparation to young students who have little experience with standardized testing, and this form of it can actually increase the validity of a test score because it is less likely that students will do poorly due to unfamiliarity with the testing process. Test preparation begins to affect validity in a negative way, however, when there are excessive amounts of alignment between test items and curricula, excessive coaching on a particular type of item that will appear on the test, or even outright cheating. Although these efforts are often undertaken with good intentions, overuse of test preparation strategies can lead to score inflation. Score inflation is a phenomenon in which scores on high-stakes assessments tend to increase at a faster rate than scores on low-stakes assessments. The validity of the assessment results is reduced when score inflation is present. Studying its prevalence is difficult because LEAs may be reluctant to give researchers access to test scores for the purpose of investigating possible inflation. Several studies, however, have been able to document the problem of score inflation by comparing gains on state assessments (historically, high-stakes) to those made on NAEP (low-stakes). Studies have consistently reported discrepancies in the overall level of student achievement, the size of student achievement gains, and the size of the achievement gap. These discrepancies indicate that student scores on state assessments may be inflated and that these inflated scores may not represent true achievement gains as measured by another test of a similar construct. In this case, the validity of the conclusions based on state assessments may be questioned. The ESSA added new provisions that focus on testing burden and possibly reducing the number of assessments overall (not just those required by Title I-A). Each state may set a target limit on the aggregate amount of time used for the administration of assessments for each grade that is expressed as a percentage of annual instructional hours. For each grade served by the LEA, it must provide information on (1) the subject matter being assessed; (2) the purpose for which the assessment is designed and used; (3) the source of the requirement of the assessment; and (4) the amount of time students will spend taking assessments, the schedule of assessments, and the format for reporting results of assessments (if such information is available). In addition, the Secretary may reserve funds under the State Assessment Grant program to provide grants to states for conducting audit assessments that examine whether all of the tests being used in a state are needed, and to provide subgrants to LEAs to conduct a similar examination of assessments used at the LEA level.","The Elementary and Secondary Education Act (ESEA), as amended by the Every Student Succeeds Act (ESSA; P.L. 114-95), specifies the requirements for assessments that states must incorporate into their state accountability systems to receive funding under Title I-A. While many of the assessment requirements of the ESEA have not changed from the requirements put into place by the No Child Left Behind Act (NCLB; P.L. 107-110), the ESSA provides states some new flexibility in meeting them. This report has been prepared in response to congressional inquiries about the revised educational accountability requirements in the ESEA, enacted through the ESSA, and implications for state assessment systems that are used to meet these requirements. While these changes have the potential to add flexibility and nuance to state accountability systems, for these systems to function effectively the changes need to be implemented in such a way as to maintain the validity and reliability of the required assessments. To this end, the report also explores current issues related to assessment and accountability changes made by the ESSA. The ESEA continues to require that states implement high-quality academic assessments in reading, mathematics, and science. States must test all students in reading and mathematics annually in grades 3 through 8 and once in high school. States must also test all students in science at least once within three grade spans (grades 3-5, 6-9, and 10-12). Assessments in other grades and subject areas may be administered at the discretion of the state. All academic assessments must be aligned with state academic standards and provide ""coherent and timely"" information about an individual student's attainment of state standards and whether the student is performing at grade level (e.g., proficient). The reading and mathematics assessment results must be used as indicators in a state's accountability system to differentiate the performance of schools. State accountability systems continue to be required to report on student proficiency on reading and mathematics assessments. However, a singular focus on student proficiency has been criticized for many reasons, most notably that proficiency may not be a valid measure of school quality or teacher effectiveness. It is at least partially a measure of factors outside of the school's control (e.g., demographic characteristics, prior achievement), and may result in instruction being targeted toward students just below the proficient level, possibly at the expense of other students. In response, the ESSA provides the option for student achievement to be measured based on proficiency and student growth. While measures of student growth remain optional, prior to the enactment of the ESSA, states were only able to include measures of student growth in their accountability systems if they received a waiver from the U.S. Department of Education to do so. The ESSA also authorizes two new assessment options to meet the requirements discussed above. First, in selecting a high school assessment for reading, mathematics, or science (grades 10-12), a local educational agency (LEA) may choose a ""nationally-recognized high school academic assessment,"" provided that it has been approved by the state. Second, the ESSA explicitly authorizes the use of ""computer adaptive assessments"" as state assessments. Previously, it was unclear whether computer adaptive assessments met the requirement that statewide assessments be the same assessments used to measure the achievement of all elementary and secondary students. Computer adaptive assessments adjust to a student's individual responses, which means that all students will not see the exact same questions. The ESSA added language clarifying that students do not have to be offered the same assessment items on a computer adaptive assessment. The ESSA also authorizes an exception to state assessment requirements for 8th grade students taking advanced mathematics in middle school that permits them to take an end-of-course assessment rather than the 8th grade mathematics assessment, provided certain conditions are met. The ESSA added specific provisions related to the assessment of ""students with the most significant cognitive disabilities"" that were previously addressed only in regulations. It made changes in how English learners (ELs) have their assessment results included in states' accountability systems as well. Additionally, the ESEA as amended through the ESSA now requires LEAs to notify parents of their right to receive information about assessment opt-out policies in the state. If excessive numbers of students opt out of state assessments, however, it may undermine the validity of a state's accountability system. States continue to be required to administer 17 assessments annually to meet the requirements of Title I-A. These requirements have been implemented within a crowded landscape of state, local, and classroom uses of educational assessments, raising concerns about over-testing of students. The ESSA added three new provisions related to testing burden: (1) each state may set a target limit on the amount of time devoted to the administration of assessments; (2) LEAs are required to provide information on the assessments used, including the amount of time students will spend taking them, and (3) the Secretary of Education may reserve funds from the State Assessment Grant program for state and LEA assessment audits."
"The United States is unusual among contemporary presidential republics by providing for the indirect election of its President and Vice President. Election of these two officers by a group of electors, known collectively as the electoral college, was established in Article II, Section 1 of the U.S. Constitution. The states were given blanket authority to appoint these electors ""in such Manner as the Legislature[s] thereof"" may direct. The original constitutional provisions, under which electors cast two votes for different candidates for President, but none for Vice President, proved unworkable after only two contested elections, resulting in a constitutional crisis during the deadlocked election of 1800. Following this significant event, Congress proposed the Twelfth Amendment, which provides for separate electoral vote ballots in Congress for the President and Vice President, and which was ratified by the states in time for the 1804 election. The constitutional presidential election provisions of Article II, Section 1 and the Twelfth Amendment have remained unchanged since that time. As with other provisions of the Constitution, Article II, Section 1 and the Twelfth Amendment established a basic framework for presidential elections but it extended considerable latitude to the states concerning its implementation. Arguably the most important related power reserved to the states was their right to appoint electors ""in such Manner as the Legislature thereof may direct.... "" In the years following ratification of the Twelfth Amendment, this right was exercised in various ways as state laws and political party procedures added a range of now-familiar additional elements to the system. These include such practices as popular election of electors by the voters; joint tickets for presidential and vice presidential candidates—the voter casts a single ballot for both candidates; the predominance of the general ticket, or winner-take-all, system or method, which awards all of a state's electoral votes to the ticket that wins the most popular votes statewide; a range of differing nomination procedures for elector candidates in the states; and, an enduring tradition that electors are expected, but not constitutionally required, to vote for the candidates to whom they are pledged. The electoral college system has proved to be durable: 54 presidential elections have been held under this arrangement since the Twelfth Amendment was implemented in 1804. In 53 of these, it delivered a majority of electoral votes for President and Vice President, and in 49 instances it delivered the presidency to ""the people's choice,"" the candidates who won the most popular votes. When measured by the first factor, it delivered an electoral vote majority to one candidate or ticket 98.2% of the times; when measured by whether it has delivered the presidency to ""the people's choice,"" the candidate who won the most popular votes, it did so 90.7% of the times. The electoral college has almost always been the subject of some criticism, however. Proposals to reform its alleged failings, or to replace it with something completely different, have been offered since the earliest days of the republic. Few questions so vexed the Constitutional Convention of 1787 as that of presidential election. During the convention, the delegates voted successively for election by Congress; direct popular election by the people; selection by the governors of the several states; election by electors chosen by the state legislatures; and even election by a group of Members of Congress chosen by lot. At length, the matter was referred to a committee on ""postponed matters,"" which reported a compromise plan near the close of the convention. The committee considered a range of generally agreed-upon principles for choice of the chief executive. Proceeding from the lengthy convention debate on choosing the chief executive, they contrived a mode of election designed to be free of undue influence by Congress, thus ensuring greater independence in the executive and separation of powers; provide a fundamental role for the states by establishing the election as a federal, as well as a national, process; allocate electors by a formula that provided a certain degree of advantage to less populous states, to avoid complete domination of the election process by the more populous ones; give the state legislatures broad authority over the choice of electors: at the legislatures' discretion, electors could be picked by popular vote, by the legislature itself, or by another body altogether; and, ultimately temper popular enthusiasms and partisan and sectional attachments by giving the actual vote to the electors, who, it was hoped, would be prominent citizens of their states and communities—well-informed and educated persons who would make a balanced and measured selection. Notwithstanding the Founders' intentions, from the very beginning, the electoral college began to change, evolving through constitutional amendment, state laws, and political party practices. The growth of political parties and the spread of voting rights and democratic principles overtook the Founders' vision that the President would be chosen by the nation's most distinguished citizens. Within two decades, the electoral college evolved into the compound system that continues to govern U.S. presidential elections two centuries later. As noted previously, the U.S. Constitution's minimal electoral college provisions have been complemented over the past two centuries by a range of federal and state laws, political party procedures, and enduring political traditions, resulting in the system as it exists today. The salient features of the contemporary arrangement, a mixture of these elements, are detailed below. The electors are collectively known as the electoral college; although this phrase does not appear in the Constitution, it gained currency in the early days of the republic, and was recognized in federal law in 1845. The electoral college has no continuing existence. Its sole purpose is to elect the President and Vice President; electors convene in the state capitals, vote, and adjourn. Each state is allocated a number of electors equal to the combined total of its U.S. Senate and House of Representatives delegations; in addition, the District of Columbia is also allocated three electors. At present, the total is 538, reflecting the combined membership of the Senate (100 Members), the House (435 Members), and the District of Columbia electors. Any person may serve as an elector, except Senators and Representatives, or any other person holding an office of ""trust or profit"" under the United States. As noted previously, the state legislatures select the method by which electors are chosen. In practice, all states currently provide for popular election of their electoral college delegations. Candidates for the office of elector are nominated by political parties and other groups eligible to be on the ballot in each state. In most cases, the elector candidates are nominated by the state party committee or the party's state convention. The winning presidential and vice presidential candidates must gain a majority of electoral votes (270 of 538) to be elected. If no ticket of candidates attains a majority, then the House of Representatives elects the President and the Senate elects the Vice President, in a procedure known as contingent election. The assorted components of the electoral college system come into operation before, during, and after presidential election day, once every four years. Aside from the period of several months when electors are nominated, elected, and cast their votes, the college has no permanent or continuing existence. Presidential election day is set by federal law for Tuesday after the first Monday in November every fourth year succeeding the election of President and Vice President; one-third of U.S. Senators, all Members of the House of Representatives, and many state and local officials are also chosen on election day, which falls on November 3 in 2020. On election day, voters across the country cast one vote for the team of presidential and vice presidential candidates they support. When they do so, they are actually voting for the political party ""ticket"" of candidates for the office of elector who support, and pledge to vote for, that party's presidential and vice presidential candidates. The popular vote is cast and certified, the electors are chosen, and they then assemble and vote in their respective states. While the nationwide popular vote count, the ""horse race,"" is generally accorded widespread publicity during the campaign, ultimately it is the electoral vote tally in the states that decides the election. The goal of presidential campaigns is to win by carrying states that collectively cast a majority of electoral votes. In particular, political parties and presidential campaign organizations focus on states that are closely contested, that have large delegations of electoral votes, or both. Winning a majority of the more populous of these ""battleground"" or ""swing"" states is considered crucial to obtaining the necessary electoral vote majority. In 48 states and the District of Columbia, the ticket that wins the most popular votes, a plurality or more, is awarded all the state's electoral votes. That is, the winning party's entire slate or ticket of candidates for the office of elector is elected. This is referred to as the ""general ticket"" or ""winner-take-all"" system or method. Maine and Nebraska use a different method, the ""district"" system, under which popular votes are counted twice; first, on a statewide basis, and second, on a congressional district basis. The presidential/vice presidential ticket receiving the most votes statewide receives two electors (or electoral votes) for this total. The ticket winning the most votes in each congressional district receives a single elector/electoral vote for that district. In this way, a state's electoral vote may be divided to reflect geographical differences in support within the state for different candidates. Presidential electors assemble on the first Monday after the second Wednesday in December following the election. In 2020, the electors are to assemble on December 14. They meet in their respective states and cast separate votes by paper ballot for the President and Vice President. As noted earlier, candidates for the office of elector are selected by their respective political party. They are expected to vote for the candidates to whom they are pledged, but occasionally a ""faithless elector"" will vote against instructions. After the electoral college votes, the results are forwarded by state officials to Congress and various other federal authorities designated by law. On January 6 of the year following a presidential election, Congress meets in a joint session to count the electoral votes and make a formal declaration of which candidates have been elected President and Vice President. Historically, public opinion, as measured by survey research, consistently supported reform (i.e., direct popular election), until recently. The Gallup Poll reported as early as 1967 that 58% of respondents supported direct election, compared with 22% who favored retaining the electoral college; Gallup's 2013 survey recorded that 63% of respondents favored an amendment providing for direct election, while 29% favored retention of the electoral college. Following the 2016 election, however, Gallup reported a shift to greater support for the electoral college system by respondents who identified themselves as ""Republican"" or ""Lean Republican."" Conversely, already high levels of support for direct popular election among respondents who identified themselves as ""Democratic"" or ""Lean Democratic"" rose to new heights in the post-2016 election Gallup Poll. As noted in the introduction to this report, the electoral college and the system built around it have delivered a President and Vice President in 53 of 54 elections since the Twelfth Amendment was ratified in 1804. It has elected the candidates who received the most popular votes in 49 of those elections. While the system's defenders point to this as a considerable achievement, the electoral college has been criticized for a wide range of alleged failings since the earliest days of the republic. These criticisms fall generally in one of two categories. The first is essentially philosophical , and centers on the fact that the existing system is indirect, and provides a less-than-fully democratic indirect election of the President and Vice President. The second category addresses perceived constitutional, legislative, and political structural flaws in the system asserted by its critics, focusing on the potential for various dubious procedures and outcomes, and the ""biases"" it is alleged to confer on certain groups and jurisdictions. Perhaps the fundamental contemporary criticism of the Founders' creation is philosophical. Proponents of change maintain that the electoral college system is intrinsically undemocratic—it provides for ""indirect"" election of the President and Vice President. They assert that this is an 18 th century anachronism, dating from a time when communications were poor, the literacy rate was much lower, and the nation had yet to develop the durable, sophisticated, and inclusive democratic political system it now enjoys. They maintain that only direct popular election of the President and Vice President is consistent with modern democratic values and practice. Defenders of the electoral college system reject this suggestion; they maintain that while it may be indirect, it is not undemocratic—electors are chosen by the voters in free elections. They argue that the system prescribes a federal election of the President with votes tallied in each state, noting that the United States is a federal republic, not a plebiscitary democracy. The states, they assert, are long-established entities: distinct political, social, and economic communities that exercise substantial authority in many areas of governance, including presidential elections. The Founders, they note, intended that choosing the President would be an action Americans take both as citizens of the United States and as members of their state communities. Beyond the fundamental claim that the electoral college is undemocratic, critics also cite what they identify as a wide range of structural flaws in the system; some of these are asserted to have origins in the constitutional provisions authorizing the electoral college system, while others are attributed variously to state legislation and political party practices. Some of the electoral college system's asserted failings are attributed by its critics to its structure and provisions as established in Article II, Section 1 of the Constitution and the Twelfth Amendment. Perhaps the most widely cited structural criticism of the electoral college system is that it can lead to the election of Presidents and Vice Presidents who win a majority of the electoral vote, but who have gained fewer popular votes nationwide than their major opponents. This result has been variously referred to as ""wrong winner"" or an electoral college ""misfire,"" particularly among reform advocates, and has occurred four times in the nation's history, 1876, 1888, 2000, and most recently in 2016. In one other election, that of 1824, no candidate received a majority of electoral votes, leading to contingent election in Congress. Proponents of direct election claim this potentially violates a fundamental democratic principle that the candidate winning the most popular votes should be elected. Electoral college supporters defend the system on the grounds that it is a federal election rather than a national plebiscite, and further note the system has delivered ""the people's choice"" in 49 of 54 elections since ratification of the Twelfth Amendment, a rate of 90.7%, as noted earlier in this report. Contingent election, the electoral college ""default"" setting for cases in which no candidate receives the necessary majority of electoral votes, has also been cited by some as a structural failing of the system. If the presidential and/or vice presidential candidates fail to receive a simple majority of the electoral college votes, the Twelfth Amendment to the Constitution provides that the House of Representatives chooses the President and the Senate chooses the Vice President by contingent election. In a contingent election, however, each state casts a single vote for President in the House, while each Senator casts a single vote for Vice President. Critics of contingent election generally argue that it removes the choice of President and Vice President one step further from the voters. That is, members of the House and Senate are free to exercise their choice without regard to the winners of the popular vote in their districts, states, or in the nation at large. Moreover, by effectively granting each state an equal vote, they claim that contingent election fails to account for great differences in population—and the number of popular votes cast—in the various states. Finally, it may be noted that the Twelfth Amendment does not provide for District of Columbia participation in a contingent election in the House and Senate. While the ratification of the Twenty-third Amendment in 1961 granted the District of Columbia three votes in the electoral college, the nation's capital would be effectively disenfranchised in a contingent election, as it is not a state and sends neither Senators nor Representatives to Congress. Defenders might counter by noting that contingent election is a ""break glass only in case of an emergency"" procedure, and has been required only once, under arguably unique circumstances, in the 54 presidential elections since ratification of the Twelfth Amendment. An additional structural issue is that the electoral college system bases allocation of electoral votes on the results of each decennial census. After each census, all 435 Members of the House of Representatives are reapportioned among the states: some states gain Representatives, others lose them, and some remain unchanged. Gains or losses in House seats lead to comparable adjustments to state electoral vote allocations following the census. For instance, the most notable adjustments following the 2010 census were Texas, which gained four House seats and whose electoral vote allocation rose from 34 to 38, and New York, which lost two House seats, and whose electoral vote allocation fell from 31 to 29. The decennial reallocation of electoral votes is reflected in the first presidential election following each census; for instance, electoral college reallocations resulting from the 2010 census were in place for the 2012 and 2016 elections, and will continue for the 2020 election. Supporters of direct election note that decennial reapportionment of electors fails to account for significant population shifts that often occur during the course of a decade. Thus, the allocation of electoral votes for the elections of 2012, 2016, and 2020 reflect the 2010 population distribution among the states, but it makes no provision for changes during the decade. States that enjoy greater population gains during the current decade will not see those increases translated into more presidential electors until 2024. Until then, they will arguably be under-represented in the electoral college, while by the same logic, those that will ultimately lose seats and electors will be over-represented. The Twelfth Amendment to the Constitution directs presidential electors to ""meet in their respective States, and vote by ballot for President and Vice President, one of whom, at least, shall not be an inhabitant of the same state with themselves.... "" It offers no further guidance beyond this instruction. There is ample evidence that the Founders intended electors to be representatives of their state political communities, free agents, able to vote for the persons they thought best fit for the presidency or vice presidency. Perhaps naively, they failed to anticipate the growth of partisanship and a nascent party system that emerged as early as President Washington's second Administration. The job of the elector was therefore quickly transformed from that of dispassionate judge to loyal party agent, expected to vote for the candidates designated by the party. So they remain today, and although nearly all electors since the earliest presidential elections have voted for the candidates to whom they were pledged, from time to time one or more electors have voted against the instructions of the electorate. Since the 1948 presidential election, 16 ""faithless"" or ""unfaithful"" electors have cast votes for candidates other than those to whom they were pledged, and one cast a blank ballot. Twenty-six states and the District of Columbia attempt to bind their electors by one of several means, generally by requiring an oath or pledge or requiring electors to vote for the candidates of the political party the elector represents. In 1952, the Supreme Court held in Ray v. Blair that political parties could exercise state-delegated authority to require elector-candidates for the office of elector to pledge to support the party's presidential and vice presidential nominees. The Court did not , however, rule on the constitutionality of state laws that bind electors. Many commentators suggest that binding electors and the pledges that electors make are constitutionally unenforceable, and that electors remain free agents who may vote for any candidate they choose. In the presidential election of 2016, however, three would-be faithless electors were prevented from voting for candidates other than those to whom they were pledged. From the standpoint of electoral college defenders, it may be noted that 9,675 electoral votes have been cast in the 18 presidential elections held since 1948. Of these, the 16 that were indisputably cast against voters' instructions comprised less than two thousandths of one percent (0.001654%) of the total and had no effect on the outcome of any election. The second category of asserted distortions caused by the electoral college arrangement stems from procedures that have been added to its constitutional provisions by the states over a long period of time. The most important issue is the nearly universal adoption of the general ticket, or winner-take-all, system for awarding electoral votes. The general ticket system of awarding electoral votes is cited by critics as a structural failing of the electoral college system, an issue that does not stem from the Constitution, but rather from state laws. At the present time, 48 states and the District of Columbia provide that the ticket of presidential and vice presidential candidates that wins the most popular votes wins all the electoral votes for that jurisdiction. By awarding all of a state's electoral votes to the winner, regardless of the closeness of the popular vote results, the general ticket system is said to discount the votes of citizens who preferred the candidates receiving fewer votes. This asserted inequity is said to be particularly apparent in states where the popular vote is closely divided. Conversely, electoral college defenders claim the general ticket system's ""multiplier"" effect tends to reinforce the overall election results by magnifying the winning ticket's margin and to deter frivolous challenges to the state-by-state results. Maine and Nebraska provide the only exceptions to the general ticket system, having established what is referred to as the ""district system"" of awarding electoral votes. In these states, as noted earlier in this report, votes are counted both by congressional district and on the statewide level. The candidates winning the most popular votes statewide are awarded the two electoral votes reflecting the state's ""senatorial"" electors, while the candidates winning in each congressional district are awarded one elector, reflecting the results in that district. Proponents of direct election criticize the district system on the grounds that adding the ""senatorial"" electors to the statewide winners' total has much the same effect of disadvantaging the losing candidates and their supporters. District system supporters claim that it better reflects geographical differences in candidate support throughout a state, thus delivering an electoral vote that more accurately represents local preferences. Opponents of the electoral college identify another category of alleged distortion built into the system. These are said to provide an advantage derived from state population or voter characteristics or behavior. As the composition of the electoral college is partially based on state representation in Congress, some maintain it is inconsistent with the ""one person, one vote"" principle. The Constitutional Convention agreed on a compromise plan whereby less populous states were assured of a minimum of three electoral votes, based on two Senators and one Representative, regardless of state population. Since electoral college delegations are equal to the combined total of each state's Senate and House delegation, its composition is arguably weighted in favor of the ""small,"" or less populous, states. The two ""senatorial"" or ""at large"" electors to which each state is entitled are said to confer on them an advantage over more populous states, because voters in the less populous ones cast more electoral votes per voter. For instance, in 2016, voters in Wyoming, the least populous state, cast 255,849 popular votes and three electoral votes for President, or one electoral vote for every 85,283 voters. By comparison, Californians cast 14,181,595 popular votes and 55 electoral votes, or one electoral vote for every 257,847 voters. As a result of this distribution of electoral votes among the states, it is argued that ""small"" states have an advantage over large states because their electoral vote totals are larger in proportion to their population. While it is generally recognized, as noted above, that small states possess an arithmetical advantage in the electoral college, some observers hold that, conversely, the most populous (large) states enjoy a voting power advantage, because they control the largest blocs of electoral votes. In combination with the general ticket system, this is said to confer an advantage on voters in these states because the large blocks of electoral votes they control have greater ability to influence the outcome of presidential elections. To use the previously cited example, a voter in Wyoming in 2016 could influence only three electoral votes, 1.1% of the 270 electoral votes needed to win the presidency, whereas a voter in California could influence 55 electoral votes in the same presidential election, 20.4% of the votes needed to gain an electoral college majority. According to this argument, known as the ""voting power"" theory, the electoral college system actually provides an advantage to the most populous states, and disadvantages all other states and the District of Columbia. Another theory centers on an asserted advantage enjoyed by ethnic minority voters. According to this argument, minority voters, principally African Americans, Latinos, and Jews, tend to be concentrated in populous states with large electoral college delegations. By virtue of this concentration, they are said to exert greater influence over the outcomes in such states because their voting patterns tend to favor candidates whose policies they perceive to be in their interest, thus helping win the states and their electoral votes for these candidates. A further alleged bias in the electoral college system is said to stem from the constitutional mandate that Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each state (emphasis added), excluding Indians not taxed. Except for the two ""senatorial electors,"" a state's electoral vote allocation depends on the number of Representatives in Congress apportioned to it. A state's electoral vote is based to this extent on residents , not on citizens , and therefore, it is asserted that states that have high numbers of noncitizen residents counted in the Census enjoy a bias in the allocation of both Representatives and electoral votes. For instance, the United States Election Project estimated that in 2016, 16.7% of California's population was noncitizens, the highest proportion of any state, followed by Texas at 13.5% and Nevada at 12.6%. Critics of the current method have argued that counting noncitizens for the purposes of apportionment of Representatives and presidential electors provides an unfair advantage to states with large non-citizen populations. A 2012 Washington Post article discussing this alleged bias concluded that, due to large concentrations of noncitizens, California gained five electors from the 2010 reapportionment that it would not have received if Representatives and electoral votes were allocated according to citizen population, rather than resident population. According to this calculation, Texas gained two additional electors and New York, Florida, and Washington each gained one because Representatives are apportioned according to population. Conversely, the author calculated that Indiana, Iowa, Louisiana, Michigan, Missouri, Montana, Ohio, Oklahoma, and Pennsylvania each lost one elector due to the noncitizen population advantage. Another alleged advantage or bias of the electoral college centers on differing rates of voter participation in the states. Neal Peirce and Lawrence Longley, writing in The People's President , suggested that voters in states that have lower rates of participation may enjoy an advantage because it takes fewer popular votes per elector to win the state and all its electoral votes. For instance, in the 2016 election, Hawaii, with four electoral votes, had the lowest rate of voter participation: 42.2% of eligible voters participated, casting 428,937 votes for President, a figure that equals 107,234 votes for each elector. By comparison, Minnesota, with 10 electoral votes, had the highest rate of participation, 74.2% of eligible voters, who cast 2,944,813 votes for President, a figure that equals 294,481votes per elector. These various biases have been debated over the years. For instance, the alleged minority vote advantage was advanced by the Presidents of the American Jewish Congress and the National Urban League as a reason for their support of the electoral college system during hearings before the Senate Judiciary Committee's Subcommittee on the Constitution during its 1979 consideration of direct election amendment, while Alexander Bickel also supported the electoral college in this context. Conversely, other commentators have sought to refute many of the ""biases"" of the electoral college system. A final asserted bias considered in this report is the so-called ""electoral college lock,"" a perceived phenomenon identified in the late 1960s that was claimed to provide a long-term election advantage to the candidates of a particular party, originally to Republicans, and later, Democrats, at least through the 2016 election. The lock was loosely defined as a tendency of the system to favor presidential candidates of one party over another. It was said to operate because a bloc of states possessing a large, sometimes decisive, number of electoral votes could be reliably expected to vote in successive elections for the candidates of the political party that tended to dominate those states. For instance, California is regarded as a reliably Democratic or ""blue"" state in presidential elections, one that dependably delivers its 55 electoral votes to the Democratic Party presidential candidates. Texas is similarly cited as a ""red"" state that reliably produces its 36 electoral votes for Republican presidential candidates. These one-word descriptors quickly gained currency during the first decade of the 21 st century, and have since become a standard verbal identifier for defining a state's political record and voting patterns. As with other electoral college issues, the electoral college lock was also said to be dependent on the general ticket system discussed earlier in this report, because it delivers a state's entire electoral vote to the winning candidates. The electoral college lock theory dates to the late 1960s, when analyst and historian Kevin Philips developed a thesis that political and social developments were responsible for a partisan realignment that was arguably the most important factor in creating the lock. In The Emerging Republican Majority , he predicted that growing Republican Party conservatism and the Democratic Party's embrace of the civil rights movement and a socially and politically progressive or liberal agenda would combine with demographic developments favorable to the ""Sunbelt"" states to produce a restructuring of the nation's political balance in favor of the Republican Party. Political commentators generally credit Horace Busby, a political advisor to President Lyndon B. Johnson, with naming rights for the lock. During the 1980 presidential election campaign, Busby reviewed electoral college trends since the 1968 election and concluded that ""... Democratic candidacies for the White House may no longer be viable. The Republican lock (emphasis added) is about to close; it will be hard for anyone to open ... between now and the year 2000."" At the time Busby coined the term electoral college lock, the phenomenon was largely presumed to benefit the Republican Party. For a period of at least 20 years, beginning in 1968, observers pointed to a nearly uninterrupted string of GOP presidential election victories as proof of the lock. Republican candidates won five of six elections during this period, taking an average of 417 of 538 electoral votes per election. In the years following the 2008 and 2012 presidential elections, some observers discerned a shift in the electoral college lock in favor of Democratic Party presidential candidates. They noted that Democratic candidates had won four of the previous six presidential elections (1992, 1996, 2008 and 2012) by convincing electoral college margins, taking an average of 327 electoral votes per election. In addition, it was noted that 18 states disposing of 242 electoral votes, sometimes referred to as ""the blue wall,"" had voted Democratic in all six. This tendency was said to provide both a structural electoral vote advantage for Democratic candidates, and a serious obstacle to Republicans in these contests. It was attributed in part to the fact that social attitudes in the general public were said to have grown more favorable to Democratic candidates, and that, as one observer claimed, ""the demographic pendulum is swinging toward the Democrats. Young voters, Hispanics and a more active African-American electorate added states like Nevada, New Mexico, Colorado and Virginia to President Obama's winning coalition in the past two elections."" Other observers, however, cautioned against accepting the electoral college lock as an inevitable process that would advantage its current beneficiary notwithstanding other influences. They claimed that the purported Republican lock of the 1960s through 1980s, and the perceived Democratic lock that began in the 1990s were not a deterministic phenomenon, but could also be attributed to, and influenced by, a wide range of factors, including such influences as domestic social and economic conditions, international issues affecting public attitudes toward national security, U.S. involvement in conflict abroad, scandals of various sorts, candidate popularity, ""time for a change"" sentiment, and even the competence, or lack thereof, of a presidential nominee's campaign. The 2016 presidential election arguably confirmed some of these cautions about the inevitability of the electoral college lock or the durability the ""blue wall,"" given that three of the claimed blue wall states, Michigan, Pennsylvania, and Wisconsin, voted for the Republican candidates, providing a combined total of 46 electoral votes to the GOP ticket, thus ensuring its election. Congress may consider three basic options if it addresses the question of electoral college reform. The first choice, widely advocated for at least 50 years, would repeal the sections of the Constitution dealing with the electoral college—clause 2 of Article II, Section 1 and the Twelfth Amendment—and substitute direct popular election. The second, largely dormant for several decades, would reform the electoral college system by eliminating some of the alleged problem areas cited in the previous section of this report. A third option would be to leave arrangements as they are at present. The direct election alternative would abolish the electoral college, substituting a single nationwide count of popular votes. The candidates winning a plurality, or a majority, of the votes cast would be elected President and Vice President. Most direct election proposals would constitutionally mandate today's familiar joint tickets of presidential/vice presidential candidates, a feature that is already incorporated in state law. Some would require simply that the candidates that gain the most popular votes be elected, while others would set a minimum threshold of votes necessary to win election—generally 40% of votes cast. Some proposals would require a majority to elect, and if no presidential ticket were to win either a majority or 40% of the popular vote, then the two tickets with the highest popular vote total would compete in a subsequent runoff election. Alternatively, some versions of the direct popular election plan would provide for Congress, meeting in joint session, to elect the President and Vice President if no ticket reached the 40% or majority threshold. Proponents of direct popular election cite a number of factors in support of the concept, many of which address the issues cited in the previous sections of this report. As their core argument, they assert that the process would be simple, national, and democratic. They maintain that direct popular election would provide for a single, democratic choice, allowing all the nation's voters to choose the President and Vice President directly, with no intermediaries. The ""people's choice"" would always be elected. According to supporters of direct election, every vote would carry the same weight in the election, no matter where in the nation it was cast. No state or group of voters would be advantaged, nor would any be disadvantaged. Direct election would eliminate the potential complications that could arise under the current system in the event of a presidential candidate's death between election day and the date on which electoral vote results are declared, since the winning candidates would become President-elect and Vice President-elect as soon as the popular returns were certified. All other procedures of the existing system, such as provisions in law for certifying the electoral vote in the states and the contingent election process, would be replaced by these comparatively simple requirements. Critics of direct election and electoral college defenders seek to refute these arguments. Direct election proponents claim their plan is more democratic and provides for ""majority rule,"" yet most direct election proposals require only a plurality—as little as 40% of the vote—in order to elect the President. Other versions include no minimum vote threshold at all, or provide for election by Congress in these circumstances. How, they might ask, could plurality Presidents or those elected by Congress, a practice that was rejected by the Founders, be reconciled with the ideal of strict majoritarianism? Opponents might further maintain that direct election would result in political fragmentation, as various elements of the political spectrum form competing parties, and regionalism, as numerous splinter candidates claiming to champion the particular interests of various parts of the country, entered presidential election contests. Further, they assert that direct election would foster acrimonious and protracted post-election struggles, rather than eliminate them. A runoff election would, they might suggest, simply offer more incentives to bargaining and intrigue, thus confirming the founders' worst fears. Under direct election, they suggest, every close election might resemble the bitter post-election contests in 2000, not just in one state, but nationwide, as both parties seek to gain every possible vote. They contend that such rancorous disputes could have profound negative effects on political comity in the nation, and might ultimately undermine public confidence in the legitimacy of the presidency and federal government. Reform measures that would retain the electoral college in some form have included several variants. Most versions of these plans share certain common elements. They would eliminate the office of presidential elector while retaining electoral votes; award electoral votes directly to the candidates, without the action of electors; and retain the requirement that a majority of electoral votes is necessary to win the presidency. In common with direct election, most would also require joint tickets of presidential-vice presidential candidates, a practice currently provided by state law. The three most popular reform proposals include the automatic plan or system, which would mandate the assignment of electoral votes automatically on the current general ticket/winner-take-all basis in each state and the District of Columbia; the district plan or system, as currently adopted in Maine and Nebraska, which would automatically award one electoral vote to the winning ticket in each congressional district in each state, but would also automatically assign each state's two additional ""senatorial"" electoral votes to the statewide popular vote winners; and the proportional plan or system, which would automatically award each state's electoral votes in proportion to the percentage of the popular vote gained by each ticket. Supporters of the electoral college, as presently structured, or reformed, offer various arguments in its defense. They reject the suggestion that it is undemocratic: electors are chosen by the voters in free elections, and have been in nearly all instances since the first half of the 19 th century. They cite the electoral college as a major component of federalism, noting that the Constitution prescribes a federal election of the President by which votes are tallied in each state. As a federal republic, they assert the states have a legitimate role in many areas of governance, and that the founders intended that in choosing the President voters act both as citizens of the United States, and as members of their state communities. Proponents of the electoral college maintain that the assignment of two electors to each state regardless of population is an additional ""federal"" component of the presidential election system, comparable to the two Senators assigned by the Constitution to each state. Further, they maintain the electoral college system promotes political stability. Parties and candidates must conduct ideologically broad-based campaigns throughout the nation in order to assemble a majority of electoral votes. The consequent need to forge national coalitions having a wide appeal has been a contributing factor in the moderation and stability of the two-party system. They find the ""faithless elector"" argument to be specious: as noted previously in this report, few votes have been cast against instructions, and none has ever influenced the outcome of an election. Moreover, nearly all electoral college reform plans would remove even this slim possibility for mischief by eliminating the office of elector. On a practical level, they note that the general ticket system generally magnifies the winning ticket's electoral vote margin, an action they claim tends to bring closure to the election process and promote the legitimacy of the winning candidates. Supporters of direct election and critics of the electoral college counter that the existing system is cumbersome, potentially anti-democratic, and beyond saving. As noted earlier they maintain that the existing arrangement is the antithesis of their simple and democratic proposal. Its worst flaw has thwarted the public will on four occasions, by electing as President a candidate who received fewer popular votes than his principal opponent, and by throwing election into the House of Representatives in a fifth. They find the Twelfth Amendment's contingent election provisions to be even less democratic than the primary provisions of Article II, Section 1 of the Constitution. They cite the decennial Census issue, the provision of ""senatorial"" electors regardless of state population, the prospect of the faithless elector, and the general ticket system as providing opportunities for political mischief and deliberate distortion of the voters' choice. They warn that although all states currently provide for choice of electors by popular vote, state legislatures still retain the constitutional option of taking this decision out of the voters' hands, and selecting electors by some other, less democratic means. This option was discussed in Florida in 2000 during the post-election recounts, and its survival they claim confirms their argument that even one of the more ""democratic"" features of the electoral college system is not guaranteed, and could be changed arbitrarily by politically motivated state legislators. For nearly 30 years, the issue of electoral college reform held a prominent place on the agenda of successive Congresses. Between the late 1940s through 1979, hundreds of electoral college reform proposals were introduced in both chambers. They embraced a wide range of approaches to the question, but generally followed the outlines set out in the previous section: ""ending it"" by eliminating the entire electoral college system and establishing direct popular election, or ""mending it"" by reforming its more controversial provisions. The question of electoral college reform or replacement was actively considered throughout these years. Proposed amendments were the subject of hearings in the Senate and House Judiciary Committees on 17 different occasions between 1948 and 1979, and, most notably, electoral college reform proposals were debated in the full Senate on five occasions, and twice in the House during this period. Proposals were approved by the necessary two-thirds majority twice in the Senate and once in the House, but never the same amendment in the same Congress. Following the 1979 defeat of a direct popular election amendment on the Senate floor, and the subsequent departure of prominent congressional advocates, the question of electoral college reform largely disappeared from public attention and Congress's legislative agenda. The Senate's failed vote on a direct popular amendment marked the last occasion on which either chamber took floor action on an electoral college reform measure of any kind. Reform or replacement proposals had been familiar items on the congressional agenda; for instance, 26 amendments were introduced to abolish or reform the electoral college in the 96 th Congress (1979-1980). In the ensuing years, however, the number of related constitutional amendments introduced in the House or Senate dropped from an average of eight per Congress for the 101 st through 110 th Congresses, to none in the 113 th Congress (2013-2014). In 2016, however, as noted previously, according to official state returns reported by the Federal Election Commission, a President and Vice President were elected with a majority of electoral votes, but fewer popular votes than their principal opponents. The recurrence of this outcome in 2016 contributed to renewed interest among some in replacing the electoral college with direct popular election. Following the election, four proposals to establish direct popular election were introduced in the last weeks of the 114 th Congress, To date in the 115 th Congress, two amendments to establish direct popular election have been introduced: H.J.Res. 19 , offered on January 5, 2017, by Representative Steve Cohen, would replace the electoral college with direct popular election of the President and Vice President by plurality vote. It would also authorize Congress to set voter qualifications, times, places, and manner of holding presidential elections, and other election-related policies. H.J.Res. 65 , the ""Every Vote Counts Amendment,"" introduced by Representative Gene Green on February 7, 2017, provides for direct popular election by plurality, and also provides Congress with additional authority over related activities. Both resolutions have been referred to the House Committee on the Judiciary and to its Subcommittee on the Constitution and Civil Justice. For additional information and analysis of current electoral college reform or replacement proposals, see CRS Report R44928, The Electoral College: Reform Proposals in the 114th and 115th Congress , by [author name scrubbed]. Two trends are identifiable within the context of congressional proposals to reform or replace the electoral college introduced since the late 20 th century. First, proposed amendments introduced in the past decade all embraced the ""end it"" option, substituting direct popular election for the electoral college; no proposal to reform the electoral college has been introduced since the 107 th Congress (2001-2003). Second, the scope of proposed direct popular election amendments has arguably grown in complexity and detail. Given the contemporary context, it may be that the first development reflected a decline in electoral college support, lack of interest in reform proposals, or simply the absence of a sense of urgency. It is arguable that supporters of the current system would coalesce to defend the electoral college if its existence or integrity were endangered. Actions by the Heritage Foundation and the State Government Leadership Foundation identified later in this report arguably confirm this thesis. The second trend is that recent proposed amendments not only provided for direct popular election, but also included provisions to enhance and extend federal authority in such areas as residence standards, definition of citizenship, national voter registration, inclusion of U.S. territories and other associated jurisdictions in the presidential election process, establishment of an election day holiday, and ballot access standards for parties and candidates. If approved and ratified, provisions such as these would provide Congress with enhanced authority to establish broad national election standards, potentially superseding current state and political party practices and requirements, at least with respect to federal elections. The prospect of increased federal involvement in the administration of presidential elections raises two potential issues. The first is whether such federal involvement in traditionally state and local practices would impose additional responsibilities and uncompensated costs on state and local governments. If so, such requirements might be considered to be unfunded mandates, as they could impose additional costs on sub-federal governments, and as such would be subject to points of order on the floor of both the House and Senate. One response by the affected state and local governments might be to call for federal funding to meet the increased expenses imposed by federal requirements. Precedent for this exists in the grant program incorporated in the Help American Vote Act of 2002 (HAVA). An additional issue centers on perceptions that such an amendment and resultant legislation might be regarded as federal intrusion in state and local responsibilities. For instance, a far-reaching scenario could include the gradual assumption of the election administration structure by the federal government. In this hypothetical case, questions could be raised as to (1) the costs involved; (2) whether a national election administration system could efficiently manage all the varying nuances of state and local conditions; and (3) what would be the long-term implications for federalism. Conversely, it could be asserted that (1) a national or federal election administration structure is appropriate for national elections; (2) state or local concerns are counterbalanced by the urgent requirement that every citizen be enabled and encouraged to vote; and (3) every vote should be accurately counted. While Congress has not taken significant action on the question of electoral college reform in recent years, there has been considerable activity in the states. Only an amendment can alter the constitutional structure of the electoral college, but the states retain considerable authority concerning various aspects of the system. For instance, as noted elsewhere in this report, Article II, Section 1, clause 2 gives the state legislature broad authority to ""appoint"" electors in any way they choose. In practice, this appointment has been by popular election for 150 years. States also have authority over the formula by which electors are elected; as noted, 48 states and the District of Columbia use the general ticket system, but Maine and Nebraska adopted the district system or plan decades ago, an example of the states acting in their classic role as ""laboratories of democracy."" In other words, the states are free to experiment with systems of elector selection and electoral vote allocation, up to a point. Over the past decade, both proportional and congressional district plan proposals have been advanced in the states, as identified in the following section, but none has been successfully adopted to date. These have included efforts in the following states: California —Ballot initiative campaigns in 2008 (the California Presidential Reform Act) and 2012 (the California Electoral College Reform Act) sought to establish a district system of electoral vote distribution and in 2014 (the California Split Electoral College Vote Distribution Initiative) to establish a proportional system by popular vote, but all three failed to gain ballot access. Colorado —On November 2, 2004, Colorado voters rejected a state constitutional amendment, Amendment 36, which would have provided a proportional allocation of electoral votes. After a contentious campaign that gained a degree of national interest, the proposal was ultimately defeated by the voters. Michigan —In 2011 and 2014, bills were introduced in the legislature to change electoral vote allocation in Michigan from the general ticket to the district system. No action beyond hearings was taken on either proposal. Nebraska —Bills to return Nebraska from the district system to the general ticket allocation of electoral votes were introduced in the state's unicameral legislature several times after 2011, most recently in 2016. None of these proposals has been successful to date. Pennsylvania —In 2011 and 2012, two proposals were introduced in the Pennsylvania legislature to award the commonwealth's electoral votes according to the district system, but neither bill was enacted. In 2013, legislation was introduced to award electoral votes according to the proportional system. As with earlier proposals, no action was taken beyond committee referral. Virginia —In 2012, a variant of the district system was introduced in the Virginia General Assembly. In contrast to the system as enacted in Maine and Nebraska, which awards each state's two senatorial electors to the presidential ticket winning the most popular votes statewide , this legislation would have awarded the senatorial electors to the presidential ticket that won the popular vote in the greatest number of congressional districts statewide . The bill was ""bypassed indefinitely"" in 2013. Wisconsin —Between 2011 and 2014, press accounts indicated that Wisconsin state legislators would introduce legislation to award the state's electoral votes according to the district system. The Wisconsin Legislature's database for this period does not, however, identify any such proposal as having been introduced. In addition to these specific plans, other states have been reported as considering changes to their current allocation of electoral votes in recent years, particularly Ohio and Florida. At the time of this writing, however, no measure has been introduced in the legislature of either state to this effect, and press accounts indicate that such actions are unlikely in the immediate future. Related activity in state legislatures continued following the 2016 presidential election. According to press reports, bills to change from the general ticket to district systems were introduced in 2017 in the legislatures of Minnesota and Virginia. At the time of this writing, neither proposal has progressed beyond committee assignment in the respective legislatures. Another contemporary electoral college reform or replacement effort centers on the National Popular Vote initiative, (NPV), a non-governmental campaign. NPV is a nongovernmental initiative which seeks to establish direct popular election of the President and Vice President through an interstate compact, rather than by constitutional amendment. Under the compact's provisions, legislatures of signatory states (including the District of Columbia) would appoint presidential electors committed to the presidential ticket that gained the most votes nationwide . Assuming all 50 states joined the NPV compact, this would deliver a unanimous electoral college decision for the candidates winning the most popular votes. Northwestern University law professor Robert W. Bennett and constitutional law professors Akhil and Vikram Amar are generally credited as originators of the NPV concept. NPV relies on the Constitution's broad grant (in Article II, Section 1, clause 1) of power to each state to ""appoint, in such Manner as the Legislature thereof may direct [emphasis added], a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress."" Specifically, the plan calls for an interstate compact in which the legislatures in each of the participating states agree to appoint electors pledged to the candidates who won the nationwide popular vote . State election authorities would count and certify the popular vote in each state, which would be aggregated and certified nationwide as the ""nationwide popular vote."" The participating state legislatures would then choose the slate of electors pledged to the ""nationwide popular vote winner,"" notwithstanding the results within their particular state . Barring unforeseen circumstances, if all 50 states and the District of Columbia were to join the NPV, it would yield a unanimous electoral college vote of 538 electors for the winning candidates. The compact, however, would take effect only if states controlling a majority of the electoral college, 270 or more votes, were to approve the plan. This would guarantee the plan's success by ensuring that at least 270 electoral votes would be cast for the candidates winning the most popular votes. If the national popular vote were tied, the states would be released from their commitment under the compact, and would choose electors who represented the presidential ticket that gained the most votes in each particular state. One novel NPV provision would enable the presidential candidate who won the national popular vote to fill any vacancies in the electoral college with electors of his or her own choice. States would retain the right to withdraw from the compact, but if a state chose to withdraw within six months of the end of a presidential term, the withdrawal would not be effective until after the succeeding President and Vice President had been elected. Between 2007 and 2014, 10 states and the District of Columbia joined the compact. They are allocated a total of 165 electoral votes, 61% of the 270 vote majority that would be required for the compact to be implemented. States that have adopted the NPV Compact, including their electoral vote allotments, are listed below, in chronological order. Hawaii (4 electoral votes), 2008; Illinois (20 electoral votes), 2008; Maryland (10 electoral votes), 2008; New Jersey (14 electoral votes), 2008; Washington (12 electoral votes), 2009; Massachusetts (11 electoral votes), 2010; District of Columbia (3 electoral votes), 2010; Vermont (3 electoral votes), 2011; California (55 electoral votes), 2011; Rhode Island (four electoral votes), 2013; and New York (29 electoral votes), 2014. According to National Popular Vote, Inc., the national advocacy group for the NPV initiative, the compact has been introduced in all 50 states and the District of Columbia. The National Conference of State Legislatures reports that in 2017 it is ""pending"" in the legislatures of eight states that jointly dispose of 88 electoral votes. Conversely, proposals to rescind approval of the NPV Interstate Compact have been introduced in the legislatures of Hawaii, Maryland, Massachusetts, New Jersey, and Washington to date, but none has been approved. Following California's accession to the NPV compact in 2011, various conservative or libertarian groups announced measures to defend the electoral college system. On December 7, 2011, the Heritage Foundation hosted a forum at which guest speakers, including five state secretaries of state, expressed their concern over the National Popular Vote campaign. On December 8 of the same year, Roll Call reported that the State Government Leadership Foundation, a project of the Republican State Leadership Committee, would begin a campaign to defend the electoral college and counter recent NPV gains. The electoral college system emerged from the Philadelphia Convention of 1787 as one of the many compromises incorporated in the United States Constitution. It did not satisfy everyone, but it incorporated many of the goals sought for the presidential election process, including independence from control or influence by Congress, a substantial role for the states, and an effort to temper popular enthusiasms and partisan and sectional attachments by giving the actual vote to the electors, who, it was hoped, would be prominent citizens of their states and communities who would exercise restraint and balance in their choice of the President. Since that time, it has been modified directly by the Twelfth and Twentieth Amendments to the Constitution and indirectly through the Fifteenth, Nineteenth, and Twenty-fifth Amendments, the passage of various federal and state laws, and changing political party practices and traditions. The electoral college functions today in a way that is far more democratic and political-party oriented than the founders might have anticipated or desired, but the three essential features of the system cited above remain intact: the process is largely free of structural interference by Congress; it is based strongly on federal principles; and the electors, although now all popularly elected, still make the final choice of the President an indirect one. Despite the convention's satisfaction with its work, the electoral college has been criticized on various grounds from the earliest days under the republic; reform proposals were introduced in Congress as early as 1797. Since that time, amendments have been introduced to reform or replace the electoral college with direct popular election in almost every session of Congress. Estimates vary, but they number at least 752 through the 115 th Congress. For more than two decades in the mid-20 th century, electoral college reform was actively considered in Congress. Relevant amendments were debated in the Senate on five occasions, and in the House, twice, but despite public support and the efforts of congressional leadership, none of these proposals met the stringent qualifications required by Article V of the Constitution: a two-thirds vote in both houses of Congress. Congressional support and public interest in the question waned in the 21 st century, notwithstanding an electoral college ""misfire"" in the presidential election of 2000, when, for the first time since 1888, a President was elected with a majority of electoral votes but fewer popular votes than his major-party opponent. During this period, the arena of electoral college reform was dominated for more than a decade by efforts at the state level, and by a non-governmental initiative, as noted earlier in this report. The states may continue to consider legislative action providing for changes in their procedures for allocating electoral votes by either the district or proportional systems. To date, however, such proposals have generated intense controversy and opposition in the states where they have been introduced, being regularly characterized by opponents as efforts to rig presidential elections and deprive minorities of their voting rights. To date, none has been successful. Barring unforeseen circumstances, such experiments do not appear to enjoy widespread support, and even if enacted, they might be subject to legal challenges on various grounds, including dilution of minority voter influence. With respect to the National Popular Vote Initiative, despite its successful adoption by California in 2011 and New York in 2014, and the results of the 2016 election, the NPV interstate compact has yet to develop sustained momentum. While it has generated interest in various direct popular vote advocacy communities, it does not appear to have gained widespread awareness or support among the public at large. Following the presidential election of 2016, congressional interest in reform, specifically direct popular election of the President and Vice President, revived; as noted previously, two measures are pending in the 115 th Congress. To date, however, they have received no action beyond committee referral. These proposals face the exacting standards required by Article V of the Constitution, which establishes procedures for constitutional amendments. The founders intentionally made it difficult to revise the Constitution, establishing requirements for three separate super-majority votes: by two-thirds in both the Senate and House of Representatives Congress and ratification by three-quarters of the states. Congress exercises still further influence on the amendment process because it can choose ratification by state legislatures, or by ad hoc state ratification conventions, at its discretion. In practice, the standard for ratification is even higher, since it is customary to attach a seven-year deadline for ratification to all proposed amendments. Notwithstanding sometimes vigorous advocacy in Congress, no electoral college reform amendment has been able to meet even the first step of this exacting requirement since the Twelfth Amendment in 1804. That measure, which responded to a fundamental constitutional crisis resulting from the deadlocked presidential election of 1800, led to an overwhelming consensus for reform. The Twelfth Amendment was debated and approved in Congress and ratified by the states within a span of six months, a remarkable achievement for the time. It is arguable that a contemporary electoral college reform amendment might require a comparable stimulus in order to succeed.","The electoral college method of electing the President and Vice President was established in Article II, Section 1 of the Constitution and revised by the Twelfth Amendment. It provides for election of the President and Vice President by electors, commonly referred to as the electoral college. A majority of 270 of the 538 electoral votes is necessary to win. For further information on the modern-day operation of the college system, see CRS Report RL32611, The Electoral College: How It Works in Contemporary Presidential Elections, by [author name scrubbed]. The electoral college has been the subject of criticism and proposals for reform since before 1800. Constitutional and structural criticisms have centered on several of its features: (1) although today all electors are chosen by the voters in the presidential election, it is claimed to be not fully democratic, since it provides indirect election of the President; (2) it can lead to the election of candidates who win the electoral college but fewer popular votes than their opponents, or to contingent election in Congress if no candidate wins an electoral college majority; (3) it results in electoral vote under- and over-representation for some states between censuses; and (4) ""faithless"" electors can vote for candidates other than those they were elected to support. Legislative and political criticisms include (1) the general ticket system, currently used in all states except Maine and Nebraska, which is alleged to disenfranchise voters who prefer the losing candidates in the states; (2) various asserted ""biases"" that are alleged to favor different states and groups; and (3) the electoral college ""lock,"" which has been claimed to provide an electoral college advantage to both major parties at different times. In its defense, electoral college supporters claim that it is a fundamental component of federalism, that it has elected ""the people's choice"" in over 90% of presidential elections, and that it has promoted political stability and a broad-based, enduring, and generally moderate political party system. Changing the electoral college system presents several options, sometimes characterized as: ""end it,"" ""mend it,"" or ""leave it alone."" Proposals to end the electoral college almost always recommend direct popular election, under which the candidates winning the most popular votes nationwide would be elected. In support of direct popular election, its advocates refer to the elections of 2000 and 2016, so-called electoral college ""misfires,"" in which candidates were elected with an electoral college majority, but fewer popular votes than their principal opponents. Almost all reform proposals—""mend it""—would keep electoral votes, but eliminate electors, thus ending the faithless elector phenomenon. They would then award the electoral votes directly by one of several methods: the general ticket system on a nationwide basis; the district system that awards electoral votes on a congressional district- and statewide-vote basis; or the proportional system that awards state electoral votes in proportion to the percentage of popular votes gained by each candidate. Despite more than 30 years of legislative activity from the 1940s through the late 1970s, proposed constitutional amendments did not win the approval of two-thirds of Members of both houses of Congress required by the Constitution for referral to the states. Since 2004, some of the reforms identified above have been attempted in the states. District plan initiatives have been offered in California, Pennsylvania, Michigan, Virginia, and Wisconsin. Proportional plans have been proposed in Colorado and Pennsylvania. Nebraska has considered returning to the general ticket system. None of these, however, has been enacted to date. A nongovernmental organization is currently promoting the National Popular Vote (NPV) initiative, an interstate compact that would effectively achieve direct popular election without a constitutional amendment. It relies on the Constitution's broad grant of authority to the states in Article II, Section 1, to appoint presidential electors ""in such Manner as the Legislature thereof may direct.... "" States that join the compact pledge to award their electoral votes to the nationwide popular vote winners, regardless of who wins in their particular states. The compact would come into effect only after states controlling a majority of electoral votes (270 or more) were to join it. At the time of this writing, 10 states and the District of Columbia, which jointly control 165 electoral votes, have joined the NPV compact. Since the 2016 presidential election, several amendments to eliminate the electoral college system and establish direct popular election have been introduced in the 114th and 115th Congress. For additional information on contemporary reform efforts, see CRS Report R44928, The Electoral College: Reform Proposals in the 114th and 115th Congress."
"The Democratic Party of Japan (DPJ) defeated the ruling Liberal Democratic Party (LDP) in August 30, 2009 elections for the Lower House of parliament. The DPJ won 308 seats, compared to 119 for the LDP in the 480-seat Lower House chamber (see Figure 1 below). The DPJ is now the main ruling party, in coalition with at least two smaller parties, the Social Democratic Party (SDP) and the People's New Party (PNP). Incumbent Prime Minister Taro Aso has announced that he will resign as head of the LDP, effectively ending his premiership, to take responsibility for his party's defeat. He will likely be succeeded as prime minister by DPJ party leader Yukio Hatoyama, who is expected to be confirmed as the next prime minister in a special session of parliament scheduled for mid-September. The political changeover in Tokyo could significantly affect U.S. interests and goals in Asia, although most analysts predict the DPJ will not fundamentally alter the U.S.-Japan alliance relationship. The DPJ has long called for a more ""independent"" relationship with the United States and has been critical of aspects of the U.S.-Japan alliance, such as plans to realign U.S. military forces based in Japan, Japan's ""Host Nation Support"" (HNS) payments (worth around $4 billion) that defray about 75% of the costs of maintaining American troops and bases in Japan, and some provisions of the Status of Forces Agreement (SOFA). The party also calls for closer relations with Asia and greater participation in United Nations-mandated activities. Now in power, the DPJ is expected to focus initial attention on sweeping domestic reforms, particularly reforming the political-bureaucratic structure, and on a large-scale stimulus package aimed at transforming Japan's struggling economy. Aside from a 10-month period in the early 1990s, the conservative LDP has governed Japan since 1955 as either a stand-alone ruling party or, as is currently the case, in coalition with other parties. Throughout this period, the LDP has been a staunch supporter of the U.S.-Japan security treaty and, in recent years, has sought a major expansion of bilateral defense cooperation. The LDP's grip on power was significantly weakened in 2007, when the left-leaning DPJ won control of the Upper House of Japan's bicameral parliament (known as the Diet) in coalition with the SDP and PNP. The resulting ""twisted Diet"" was marked by legislative gridlock across a range of domestic and foreign policies. Over the past year, the DPJ has increased its popular support by attacking the LDP's handling of the economy, opaque governing style, and unpopular leadership. This strategy increasingly put the LDP on the defensive, and on July 12, 2009, the DPJ defeated the LDP in the Tokyo Metropolitan Assembly elections, prompting Prime Minister Aso to dissolve the Lower House on July 21 and schedule nationwide elections. Although the DPJ won a decisive victory over the LDP on August 30 it fell just short of winning a two-thirds supermajority in the Lower House. In Japan's parliamentary system, the Lower House can pass legislation over opposition in the weaker Upper House if there is a two-thirds majority of votes. Had the DPJ won a supermajority on its own, it would have had the option of shedding its coalition partners. As it is, the DPJ will maintain the coalition with the leftist Social Democratic Party (SDP) and the anti-reform People's New Party (PNP) in order to maintain control of the Upper House of the Diet. The next Upper House elections are scheduled for July of 2010. Now that the DPJ is the main ruling party, it will be expected to make good on at least some of its ambitious campaign proposals to ""change Japan."" The party is expected to focus initial attention on implementing a number of domestic programs, including an allowance for families with children, a reduction of highway toll charges, and a reorganization of the power structure between politicians and central government bureaucrats. According to DPJ sources and media reports, foreign policy and alliance relations with the United States will not be the immediate focus of the new government. In the run-up to the August 30 election, the DPJ toned down some of its criticism of the bilateral alliance, indicating a potentially more pragmatic approach toward the United States. However, the party remains deeply divided on foreign policy issues and party leaders continue to send conflicting signals about the kind of relationship they seek to strike with the United States over the short and long term. The DPJ was formed in 1998 as a merger of four smaller parties and was later joined by a fifth grouping. Several party leaders are former centrist or center-right LDP lawmakers, but many rank-and-file members have a left-of-center political orientation that includes a number of former Socialist Party members. The amalgamated nature of the DPJ has led to considerable internal contradictions, primarily between the left and right wings as well as the pacifists and national security hawks who occupy the party ranks. In particular, the issues of deploying Japanese troops abroad and revising the war-renouncing Article 9 of the Japanese constitution have generated considerable internal debate. As a result, for much of its history, the DPJ had a reputation of failing to agree on coherent alternatives to the policies implemented by the LDP. Additionally, battles between various party leaders have at times weakened the party. Since winning the Upper House in 2007, the party appeared to present a more unified front, at least on the strategy of criticizing LDP policies and offering a more compelling alternative approach to Japanese voters. But it is uncertain whether this greater level of public unity is sustainable now that the DPJ is the ruling party. Leading up to the August 30 Lower House elections, the DPJ had shown greater resilience in overcoming both external political challenges and internal strife. Earlier in the spring of 2009, Prime Minister Aso and the LDP appeared emboldened by a fundraising scandal that engulfed Ichiro Ozawa, a co-founder and then leader of the DPJ. In early May, Ozawa resigned. He was succeeded as DPJ president by former party leader Yukio Hatoyama, an Ozawa backer. Ozawa's resignation as party leader was followed by a considerable popular boost for the DPJ. By mid-July, many polls showed the DPJ having double-digit leads over the LDP when voters were asked which party they would support in the Lower House elections. Although Ozawa relinquished his high-profile role in the party, he remained in the DPJ as a behind-the-scenes campaign strategist and top party leader. He is widely credited with recruiting a large number of new party candidates who won in this year's landslide Lower House elections, causing many to speculate that Ozawa will continue to wield considerable influence in the intra-party decision-making process. Ideological divisions within the DPJ have kept the party from reaching a consensus on foreign policy and national security issues. However, the DPJ platform and other policy statements throughout the years consistently raise the following main themes : Adopting a more ""assertive"" foreign policy and enhancing Japan's defense capabilities to better defend against outside threats. Maintaining the U.S.-Japan alliance as the center of Japan's national security policy while aiming to achieve a more ""mature"" alliance partnership with the United States. The party has called for a reduction of the approximately 50,000 U.S. forward deployed troops in Japan, particularly those based in Okinawa Prefecture. Maintaining constitutional restrictions on collective self-defense while expanding contributions to international security through UN-sanctioned peacekeeping operations (UNPKO). Improving Japan's relations with Asian countries by reconciling historical and territorial disputes, as well as actively promoting regional economic integration through economic partnership agreements (EPA) and free trade agreements (FTA). Supporting the global common good through overseas economic development, environmental conservation, nuclear non-proliferation and disarmament, humanitarian relief, and other measures. In the broadest sense, the pacifist/leftist wing of the DPJ adheres to a strict interpretation of Japan's ""peace constitution"" and postwar role as a non-military power. The hawkish/conservative wing of the party, most prominently led by former party head Seiji Maehara, seeks stronger defense capabilities and looser restrictions on Japan Self-Defense Force (JSDF) missions to support international security. Former party head Ichiro Ozawa has called for Japan to increase its contributions to international security strictly in missions that are authorized by the U.N. Security Council. Yukio Hatoyama, the presumed next prime minister of Japan, appears to support that basic position, although he is said to take a more flexible view of JSDF deployments that are not under direct U.N. mandate. The DPJ promotes a reformist domestic agenda for Japan that stresses government decentralization and a broader social safety net for citizens. The party's ""Basic Policies"" and campaign manifestos call for improving transparency, efficiency and accountability in government. One main objective is to bolster the decision-making authority of Japan's Cabinet over the powerful bureaucracy, thus reversing the established power dynamic in which many policy decisions rest in the hands of the bureaucrats, not the politicians. Another plan that emerged from the Lower House campaign is the creation of a National Strategy Bureau under the prime minister's office that would provide top-down direction over the national budget and other domestic policies. The DPJ believes that a ""regime change"" in Japan will reduce the influence of vested interests over policymakers and lead to a more dynamic and decentralized nation that is better prepared to handle future challenges. Although the DPJ's reform agenda appeals to many Japanese voters, the party is often criticized for lacking details about how it will finance and implement its proposals. This is particularly true of its plans to reform the domestic economy and social welfare system. The party wants to transform Japan's highly regulated, export-oriented economy into a deregulated economic system propelled by consumer-led growth. As part of the DPJ's two-year ¥21 trillion ($218 billion) stimulus proposal, household disposable income would be increased through tax cuts and payment transfers. Income support for struggling workers, as well as sweeping health-care and pension reforms, are also proposed. The DPJ claims that it will offset the cost of these programs by trimming the national budget and eliminating wasteful spending, but it has been criticized for lacking details about how its programs will be paid for over the long-run. With Japan's public sector debt approaching 200% of GDP this year, there are outstanding concerns about the nation's long-term budgetary health. The political changeover in Tokyo following the August 30 elections represents something of a watershed moment for U.S.-Japan relations. Cooperation between Washington and previous LDP-backed governments has been virtually unbroken for much of the postwar period. Many experts believe that the high point of bilateral relations occurred earlier this decade, partly as a result of the close personal rapport between former President George W. Bush and former LDP Prime Minister Junichiro Koizumi, which set the tone for close working-level coordination between their two governments. In the wake of the 9/11 terrorist attacks, the Koizumi government stated its unequivocal support for the United States and took unprecedented steps to provide rear-area assistance for U.S.-led anti-terror operations in Afghanistan. In 2003, Koizumi dispatched ground and air units of the JSDF to contribute to humanitarian reconstruction efforts in Iraq. These measures were followed by major bilateral agreements in 2005 and 2006 to ""transform"" the U.S.-Japan alliance in order to meet emerging security challenges. The DPJ has often expressed skepticism, and at times outright opposition, to many of these bilateral security initiatives, giving rise to questions among many U.S.-based experts as to the potential impact a DPJ government might have on the U.S.-Japan alliance. These concerns are compounded by a relative lack of familiarity between DPJ leaders and counterparts in the United States, although interaction between both sides has increased in the months leading up to this year's Lower House elections. A review of stated DPJ foreign policy positions indicates some areas of concern for U.S. interests, but does not rule out potential avenues for enhanced bilateral cooperation with the incoming DPJ-led government. The DPJ has often sent conflicting signals about its approach toward the U.S.-Japan alliance—a result of intra-party ideological divisions, past attempts to differentiate itself from the LDP, and episodic statements about the alliance by party leaders. The party's acknowledgment of the bilateral alliance as the center of Japanese national security policy is a tacit endorsement of the U.S. alliance system. However, the DPJ has not provided a clearer definitional explanation of what a more ""independent"" and ""equal"" alliance relationship with the United States actually signifies. Although these statements do not advocate a strategic disengagement from the United States, at the very least, they suggest apprehension concerning perceived inequities in the alliance structure. Some analysts interpret the DPJ's call for greater independence as a desire to avoid Japanese entanglement in the U.S. global strategy, especially in activities that may involve financial or military contributions to U.S.-led operations. The party sharply denounced former Prime Minister Junichiro Koizumi for supporting the U.S. invasion of Iraq in 2003, in what it saw as Japanese cooperation with ""unilateralist"" U.S. policies. Another interpretation of independence, as offered by some DPJ officials, is a desire for Japan to take greater initiative in international affairs, as opposed to merely reacting to policy directions from Washington. Nonetheless, past legislative actions and policy statements by the DPJ demonstrate the party's opposition to certain alliance management issues and U.S.-led military operations. Specifically, the party has in the past: Opposed the February 2009 U.S.-Japan Guam accord that pledges to implement the transfer of 8,000 U.S. Marines from Okinawa to Guam. In April 2009, the DPJ-led Upper House voted against the accord (it was eventually passed by the more powerful Lower House). The DPJ opposed the associated relocation of U.S. Marine Corps Air Station Futenma to Nago, instead calling for the air station to be moved ""outside"" of Okinawa. Defeated implementing legislation in the Upper House that temporarily suspended, in November 2007, the Maritime Self-Defense Force (MSDF) deployment to the Indian Ocean to refuel coalition ships involved in Operation Enduring Freedom (OEF) in Afghanistan. Promised a ""drastic"" review of Tokyo's estimated $4 billion per year Host Nation Support (HNS) for U.S. forces stationed in Japan. Proposed comprehensive revisions to the U.S.-Japan Status of Forces Agreement (SOFA) in order to make the alliance more ""equal."" DPJ leaders have also, at times, made remarks that cast doubt about their commitment to the alliance. In February 2009, Ichiro Ozawa sparked controversy when he told reporters that Japan should seek an ""equal"" alliance with the United States by reducing the U.S. force presence in Japan to all but the U.S. 7 th Fleet, based in Yokosuka, Kanagawa Prefecture. The remark was widely interpreted as advocating the withdrawal of the thousands of other U.S. military personnel based in Okinawa and other parts of Japan. Ozawa later modified his statement by suggesting that U.S. forces in Japan should only be drawn down as the SDF shoulders greater responsibilities for defending the homeland against outside threats. Despite these concerns, many of the DPJ's past objections to the bilateral alliance have been viewed as opposition to LDP policies rather than anti-U.S. positions per se. As the party campaigned to broaden its support base prior to the Lower House elections, the DPJ appeared to moderate some aspects of its message on the United States, although it still sent conflicting signals about key alliance issues. In mid-July, DPJ President Hatoyama announced that he would not seek to end the Anti-Terrorism Special Measures Law that authorizes the MSDF refueling mission in the Indian Ocean before the bill expires in January 2010. The DPJ had previously promised to terminate the mission at the earliest opportunity. The party also toned down its demands to ""drastically"" revise the current SOFA and HNS agreements with the United States, instead proposing a more ambiguous review of the bilateral agreements in its campaign manifesto. As the party transitions to take control of the government, it has left many questions about whether, and to what extent, it plans to change Japan's relations with the United States. As a way of asserting greater independence in foreign policymaking, some elements in the DPJ call for a UN-centered diplomacy and closer ties with Asia. Although this shift could ostensibly reposition Japanese diplomacy away from the United States, it may not necessarily portend a divergence from broader U.S. goals and interests over the long-term. The DPJ, at least in rhetoric, supports a more active international role for Japan through United Nations peacekeeping operations (UNPKO) and other UN-sanctioned activities that are largely consonant with U.S. foreign policy goals and interests. The DPJ's position on foreign deployments was put to test during the last Diet session (ending on July 21), when the Aso Cabinet introduced two new bills that would allow Japanese Coast Guard and MSDF vessels to take part in overseas anti-piracy and interdiction operations sanctioned by the UN Security Council. Although the DPJ ultimately opposed both bills due to domestic political considerations, the measures caused considerable debate between conservative and liberal wings of the party. In the end, the party qualified its opposition to the bills by agreeing in principle to the purpose and legitimacy of the UN-sanctioned operations. Some experts believe that the DPJ will vote to approve similar measures once it becomes the main governing party of Japan. There has been considerable debate within the DPJ on enhancing Japan's role in the stabilization of Afghanistan. The party has publicly opposed Japan's involvement in the U.S.-led Operation Enduring Freedom (OEF), since the U.N. Security Council has not explicitly sanctioned the operation. However, Ichiro Ozawa and other party members have advocated dispatching SDF troops for peace-building operations in Afghanistan as long as the mission operates under the UN-mandated International Security and Assistance Force (ISAF). Ozawa's resignation as party president this spring appears to have set back momentum for the proposal within the party. The DPJ's 2009 ""Policy Index"" (a detailed blueprint for the party's campaign manifesto) drops any direct mention of Afghanistan, instead promising that Japan will play an active role in reconstructing impoverished states that are breeding grounds for terrorist activities. There are signs, however, that the party leadership is considering alternative proposals for on-the-ground assistance in Afghanistan, such as vocational training programs and other non-combat reconstruction efforts. Interest in increasing Japan's participation in Asian regional institutions and other initiatives to enhance regional cooperation is another indication of the DPJ's desire for a more independent relationship from the United States. The party's call for Japan to become a full ""member of Asia"" suggests a departure from what the DPJ has characterized as the LDP's over-emphasis on relations with the United States, but appears to fall short of a more strategic shift to replace the U.S.-Japan alliance with an alternative regional security arrangement. Instead, the party views Japan's role in helping to create an ""East Asian Community"" as an opportunity to assert leadership outside the context of the U.S.-Japan alliance. DPJ leaders have emphasized that regional institutions also provide a multilateral framework for engaging China and managing its rising influence on the world stage. It should be acknowledged that even under LDP rule, Japan has long been an active participant in all of the major regional fora, such as the ASEAN Regional Forum (ARF), the Asia Pacific Economic Cooperation (APEC) forum, and the East Asia Summit. Exactly how the DPJ intends to alter the character of Japan's participation in these regional meetings is not clear. Despite the DPJ's stated interest in greater policy independence from the United States, its emphasis on enhanced regional relations largely complements U.S. policies for maintaining peace and stability in East Asia. In particular, the party proposes stronger ties with China and South Korea through deeper economic integration and enhanced diplomatic engagement. It advocates ""constructive dialogue"" to resolve contentious territorial disputes with the two mainland countries. The DPJ also believes it can restore trust with its neighbors by admitting to Japanese aggression during World War II. Party leaders vow not to make official visits to Yasukuni Shrine, where 14 Class-A war criminals from the World War II era are honored. Past visits to the shrine by LDP prime ministers have triggered sharp reactions from Beijing and Seoul that have raised concerns in Washington about tension in the region. While it was the main opposition party, the DPJ was reluctant to criticize the LDP's hard-line approach toward North Korea due to public outrage at Pyongyang. North Korea's abduction of Japanese nationals in the 1970s and early 1980s and repeated acts of nuclear brinkmanship have become politically charged issues in Japan—often restricting Tokyo's options for negotiating with North Korea. The DPJ, in turn, has strongly condemned recent North Korean nuclear tests and missile launches, and supports Japan's cooperation with the United States and other nations in the Six-Party Talks aimed at denuclearizing the Korean Peninsula. Following North Korea's May 2009 nuclear test, the DPJ issued a statement in support of UN Security Council Resolution 1874, which authorizes strict new sanctions against the regime. In June, DPJ President Yukio Hatoyama told reporters that he supported the possible reinstatement of North Korea to the U.S. State Department's list of state sponsors of terrorism as punishment for Pyongyang's recent provocations. North Korea was removed from the list in October 2008, after agreeing at the time to allow inspections of its nuclear facilities and take other actions toward denuclearizing the Korean Peninsula. The DPJ's relatively progressive policy agenda in other areas also parallels some of the Obama Administration's global initiatives. One such area is the effort to prevent global warming, one of the party's core agenda items. The party's 2009 Manifesto calls on Japan to take a leadership role in environmental diplomacy and to encourage the United States and other ""major emitter nations"" to concede to new emissions standards under a post-Kyoto protocol framework. Among other measures called for in the Manifesto, the party proposes to reduce Japan's greenhouse gas emissions to 25% below 1990 levels by 2020, and to introduce a U.S.-style cap-and-trade system for domestic industrial polluters. As with previous LDP governments, the DPJ-led government would likely welcome the Obama Administration's expected support for more ambitious international action on climate change in preparation for the UN climate change conference in Copenhagen this December. The DPJ and the Obama Administration share overlapping core principles on nuclear disarmament and non-proliferation, although with important differences. The party has made clear its staunch support for Japan's long-held Three Non-Nuclear Principles: not to possess, produce, or transit nuclear weapons on Japanese territory. President Obama's April 2009 speech in Prague on a ""nuclear-free world"" was seen by the DPJ as a rallying call for Japan to take a leading role in strengthening the Nuclear Non-Proliferation Treaty (NPT). The DPJ's rigid adherence to nuclear disarmament principles, however, differs from U.S. policies that allow for some flexibility, such as the 2005 atomic energy agreement between India and the United States. Further, several party leaders, including Katsuya Okada and Yoshio Hachiro, advocate a ""nuclear-free zone"" in Northeast Asia that to some extent contradicts Japan's reliance on the U.S. extended nuclear deterrent. The recent disclosure of a secret agreement between Tokyo and Washington allowing U.S. nuclear-armed vessels into Japanese ports, in violation of Japan's Three Non-Nuclear Principles, has focused media attention on the DPJ's response to the issue as it maneuvers to take control of the government. It remains to be seen whether some members of the DPJ will modify their position on nuclear arms to accommodate the U.S. nuclear umbrella in light of the North Korean nuclear program and other regional security threats. The DPJ's economic policy offers possibilities for cooperation as well as potential conflict with U.S. interests. The party's ¥21 trillion ($218 billion) stimulus plan and emphasis on a consumer-oriented economy parallel the Obama Administration's effort to encourage foreign governments to support recovery from the global financial crisis through expanded public spending and policies that encourage domestic consumption. In that vein, it is possible that the DPJ's plan to shift Japan away from an export-driven economy by supporting household demand might boost imports of U.S. goods and services—especially if it is accompanied by the deregulation that the DPJ has, at times, suggested it would pursue. In the past, the DPJ has largely supported a free-trade agenda, although the party is increasingly cognizant of protecting domestic agriculture and labor interests. The party has previously called for Japan to pursue bilateral economic partnership agreements (EPA) and free trade agreements (FTA), as well as promote global trade and investment through the successful conclusion of World Trade Organization (WTO) Doha Round negotiations. In what was widely considered a cooperative gesture toward the United States, the 2009 party Manifesto calls for the creation of a U.S.-Japan Free Trade Agreement. It is not clear, however, that the DPJ would be prepared to consider the kinds of liberalization in sensitive agricultural sectors that would likely be required to negotiate an FTA with the United States. Indeed, several aspects of the DPJ economic policy agenda indicate potentially troubling signs for U.S. commercial interests. As the party has expanded its voter support base from urban to rural districts, agriculture policies that protect domestic farming interests have become an increasingly prominent feature of the party platform. Tokyo's long-held protection of the agriculture sector is widely acknowledged as a major impediment to Japan's ability to play a more constructive role in multilateral trade negotiations, including the ongoing WTO Doha Round. Of particular concern to U.S. food exporters is the DPJ's call for severe restrictions on U.S. beef imports in response to Japan's BSE (Bovine Spongiform Encephalopathy, otherwise known as ""mad cow disease"") scare. In the past, the party has called for a complete ban on U.S. beef imports as well as strict inspection laws that may continue to restrict future U.S. beef sales in Japan. The implications of the DPJ's victory in the Lower House elections are wide-ranging and significant. At the very least, the political turnover in Tokyo has broken the half-century of near continuous LDP rule and has to some degree changed the face of Japan's political class—the elections increased the total number of female lawmakers in the Lower House from 43 to 54 (11.25% of the chamber) and brought in 158 first-time lawmakers from all parties to the chamber. But the DPJ's ability to implement its campaign promise of ""regime change"" and other reforms is likely to encounter several challenges. Many experts believe that the structural realities of the Japanese political system will force the DPJ to compromise on many of its boldest proposals. Regardless of the DPJ's overwhelming victory, it must continue to depend on a coalition with the Social Democratic Party (SDP) and the People's New Party (PNP) to control the Upper House of the Diet. The leftist SDP and the anti-reform PNP will likely exert some influence on DPJ decision-making—further stretching the already fragmented party in opposite ideological directions—although far less so now that it has gained an overwhelming majority of seats in the Lower House. The LDP and New Komeito coalition, now in the opposition, is severely weakened but may regroup to mount a significant challenge to DPJ-led policies and legislation. Several key developments will be of importance for U.S. policymakers to monitor in the near- to mid-term. The first is the immediate transition of power from the LDP- to DPJ-led government and other related issues. Top DPJ officials have reportedly met with LDP counterparts to coordinate the transition, and the DPJ is in the final stage of discussions with leaders of the SDP and PNP to solidify their participation in a coalition government. According to Japanese media reports, Hatoyama has begun making initial selections of key party posts and Cabinet positions. The DPJ's strong showing in the August 30 elections gives Hatoyama relatively free rein to select a Cabinet without significant input from the SDP or PNP, the DPJ's probable coalition partners. The still unconfirmed Cabinet lineup includes several top party members with ruling party experience such as Naoto Kan (the likely state strategy minister and deputy prime minister), Hirohisa Fujii (finance minister), and Katsuya Okada (foreign minister). The Cabinet will be officially formed in mid-September, when a special session of the Diet will be called (September 16-19) to vote on Hatoyama's presumed appointment as prime minister. A related issue involves Ichiro Ozawa's role in the party. Ozawa was instrumental in recruiting many members of the incoming class of DPJ lawmakers and was the mastermind in orchestrating the party's eventual accession to power. Due to health reasons, he was ruled out as a contender for the premiership or as a possible Cabinet minister. According to reports, Ozawa has been named the DPJ secretary general and will remain a behind-the-scenes player and principal campaign strategist in preparation for next year's Upper House elections, which are likely to be held by July 2010. A second important trend to monitor is party cohesion over the mid- to long-term. The otherwise deeply divided DPJ, it is generally believed, was united by a common objection to the LDP and its policies. With the victory over the LDP, opposition to the ruling coalition is no longer a unifying factor for the DPJ. The party leadership may be challenged to maintain party cohesion beyond the Lower House elections and through future legislative battles in the Diet. A great deal may depend on whether party leader and presumed next prime minister, Yukio Hatoyama, will be able to command loyalty among the party's ideologically diverse rank-and-file, while also managing a disjointed coalition with the SDP and PNP. It also remains to be seen whether Ozawa and his numerous followers in the Diet will remain part of the mainstream DPJ or will congeal into a faction that leads to deeper intra-party divisions. Of primary concern to U.S. policymakers will be the DPJ-led government's eventual position on the U.S.-Japan alliance—somewhat of an open question given the party's inconsistent signals on the bilateral alliance. Although party leaders make a point of highlighting the centrality of the alliance with the United States, they continue to criticize many aspects of the bilateral security arrangement. Analysts believe that the DPJ-led government will put off addressing alliance-related issues to focus initial attention on economic and administrative reforms. U.S. officials will nevertheless closely monitor DPJ policies regarding the following key alliance issues: Base realignment plans, including the relocation of Futenma and implementation of the Guam accord. Under the current agreement, the Futenma relocation must precede the transfer of U.S. Marines to Guam. Host Nation Support (HNS) and the Status of Forces Agreement (SOFA). Renewal of the Anti-terrorism Special Measures Law permitting MSDF refueling missions in the Indian Ocean after the law expires in January 2010. The DPJ's handling of the Japanese economy, still one of the world's largest, is also a major concern to U.S. policymakers, as with Japanese voters. Japan is in the midst of its worst recession since the end of the Second World War, and its GDP is expected to shrink by 6.2% this year. Now in power, the DPJ's ¥21 trillion stimulus package will be put to the test, including the promise to raise household disposable income and shift the economy to rely more on domestic consumption—all while setting out a medium and long-term strategy to slow the growth of Japan's burgeoning public sector debt. Combined with the costs associated with Japan's aging society, public sector debt would present additional challenges to the Japanese system if left unchecked. Japan's trade policy may also be a concern if the DPJ government implements its recent proposals to explore new free trade agreements with the United States and other countries, or whether it reverts to protectionist policies that shield certain domestic sectors from foreign competition. Finally, a significant benchmark for the DPJ government will be its ability to carry out major administrative reforms, including its plan to overhaul the political-bureaucratic power structure in Japan. Although it is widely agreed that this structure needs to be replaced by a more effective system, the DPJ will need to carry out administrative reforms in a way that does not ultimately damage Japan's governing institutions. Indeed, even if a dramatic transformation of the government is achieved, the DPJ will still require cooperation from the bureaucracy to implement policies. Striking the right balance between reform and restraint will be an important test of the new government's ability to manage Japan for the first time in history. The political changeover in Japan requires the United States to cooperate with a new and largely unfamiliar government in Tokyo. Several upcoming high-level events, such as the opening session of the U.N. General Assembly and the G20 summit, both in September, and a planned U.S.-Japan bilateral summit in Tokyo this November, may present President Obama with multiple opportunities to interact with the new Japanese prime minister in the coming months. It remains to be seen whether the two leaders will see eye to eye on strengthening the U.S.-Japan alliance and enhancing bilateral cooperation to confront a range of global challenges. In a statement released shortly after the August 30 Lower House elections, the White House stated its confidence that the close partnership between Japan and the United States will continue to flourish under the new leadership in Tokyo.","In a historic landslide victory, on August 30, 2009, Japan's largest opposition party, the Democratic Party of Japan (DPJ), ousted the main ruling party, the Liberal Democratic Party (LDP), in elections for control over Japan's Lower House of parliament. The LDP has had almost continuous control of the Japanese government since 1955 and has been a staunch supporter of the U.S.-Japan alliance throughout the postwar period. The DPJ, which includes a mixture of right- and left-leaning members and is led by Yukio Hatoyama, is now Japan's main ruling party. The Diet (Japan's parliament) is expected to elect Hatoyama as Japan's new prime minister in a special Diet session scheduled to begin on September 16. Since 2007, the DPJ has controlled the less powerful Upper House of the Diet, along with two smaller parties, a coalition that is expected to continue once the DPJ officially takes over the government. The DPJ policy platform advocates sweeping economic and administrative reforms and has called for a ""proactive"" foreign policy with greater ""independence"" from the United States through deeper engagement with Asia and a more United Nations-oriented diplomacy. In particular, the party has in the past criticized many issues related to the U.S.-Japan alliance, such as plans to realign U.S. forward deployed forces based in Okinawa, Japan's ""Host Nation Support"" (HNS) payments (worth around $4 billion) that defray much of the costs of American troops and bases in Japan, and the bilateral Status of Forces Agreement (SOFA). In 2007, the DPJ briefly blocked legislation allowing the Japan Maritime Self-Defense Force (JMSDF) to continue the refueling of U.S. and allied vessels engaged in Operation Enduring Freedom (OEF) in Afghanistan. For the United States, the most significant of these issues would be the HNS and base realignment plans. During the campaign for the Lower House elections, the DPJ showed signs of a more pragmatic approach toward the U.S.-Japan alliance in order to deflect LDP criticism that it was not prepared to run the country. The DPJ dropped demands to end the current legislative authorization for the JMSDF refueling mission in the Indian Ocean, and took a slightly more ambiguous position regarding the SOFA and other bilateral alliance management issues. The party's call for a U.N. and Asia-oriented diplomacy also appears to fall short of a more strategic shift to replace the U.S.-Japan alliance with an alternative regional security arrangement. Other signs suggest that the party might indirectly support U.S. foreign policy interests over the long-term through enhanced Japanese contributions to U.N.-sanctioned activities, as well as engagement in regional trade institutions and multilateral fora. Nonetheless, the party remains deeply divided on many foreign policy-related issues and continues to send conflicting signals about its overall approach toward the United States. While a political changeover in Tokyo represents a watershed moment for Japan and potentially for U.S.-Japan relations, the extent to which there will be significant policy changes in Tokyo remains uncertain. It is not clear whether some of the DPJ's past criticism of the U.S.-Japan alliance and other LDP-backed policies was the result of opposition party politicking or more fundamental policy principles that will be implemented now that the party is coming to power. The DPJ faces daunting political and economic challenges at home that many see as a higher priority for the party than its proposals for adjusting the structure of the U.S.-Japan alliance. This report analyzes the DPJ's policy platform and reviews the implications for U.S. strategic and economic interests now that the party and its coalition allies are set to take control of the Japanese government in the wake of the August 30 parliamentary elections."
"The congressional “power of the purse” refers to the power of Congress to appropriate funds and to prescribe the conditions governing the use of those funds. Congress exercises this power by providing budget authority, which is authority provided by federal law to enter into financial obligations that will result in immediate or future outlays involving federal government funds. For the purposes of this report, “alternative sources of funding” refers to collections that are available to DOJ to obligate and expend. Some of these collections, known as offsetting collections, are available for obligation and expenditure without further legislative action. Others, however, called offsetting receipts, cannot be used without being appropriated. Examples of the various types of collections at DOJ include fees from regulated industries, such as fees associated with the federal bankruptcy system collected through the United States Trustee Program; the collection of fines, settlements, and other penalties associated with criminal and civil litigation activities; businesslike transactions such as the Bureau of Prisons’ Federal Prison Industries (FPI) sale of goods and services; and CJIS fingerprint checks fees. Congress typically appropriates and conducts oversight of funds for DOJ at the account level, directing that accounts be used for specific purposes, restricting the amount or purpose for which the funds can be used, and at times requiring DOJ to report on activities conducted at the For each alternative source of funding, Congress must account level.provide DOJ authority to (1) collect amounts, (2) conduct the activity in question, and (3) obligate and expend the funds collected on that activity. In each of these three areas, Congress can delegate some flexibility to agencies in how they exercise these authorities, or it can retain control. Regardless of the flexibility Congress provides DOJ regarding alternative sources of funding, it always retains oversight over the funding and associated activities. Figure 1 outlines key characteristics through which Congress may increase or decrease an agency’s flexibility in funding. The President’s Budget provides agencies’ estimated and actual budget authority, obligations, and unobligated balances, among other things. Total budgetary resources are also reported annually in an agency’s statement of budgetary resources, which is published in either a performance and accountability report, or an agency financial report. Whereas the President’s Budget provides information used by the Office of Management and Budget (OMB) for planning and controls, the financial reports prepared by agencies are required as part of the Chief Financial Officers Act of 1990, as amended.with the financial reports are subject to audit. Seven alternative sources of funding made up approximately 15 percent of DOJ’s total budgetary resources in fiscal year 2013, and different legislative requirements affect the agency’s flexibility in using these funds. Specifically, DOJ had about $4.3 billion in collections from seven major alternative sources of funding in 2013, and generally used this funding for related program costs. In addition, agency flexibility regarding using the seven funding sources varied with laws specifying funding purposes, amounts, and availability. In fiscal year 2013, about 15 percent of DOJ’s total budgetary resources—or $5.8 billion out of $39.5 billion—came from seven major alternative sources of funding. Specifically, during fiscal year 2013, collections for these seven sources totaled about $4.3 billion, which was available to DOJ to obligate. DOJ also brought forward $1.3 billion in unobligated balances from fiscal year 2012 for these seven sources. In addition to collections that DOJ had the authority to use, in fiscal year 2013, DOJ received deposits of about $1.6 billion from two of the seven alternative sources of funding that were by law not available for the department to obligate, and therefore not counted as a budgetary resource. The seven major alternative sources of funding are the following: Assets Forfeiture Fund: The AFF receives monies from the proceeds of forfeiture of assets used in criminal operations. Proceeds deposited in the AFF are used to pay for expenses of the Asset Forfeiture Program, including asset management and disposal, the equity of innocent third parties and lienholders, equitable sharing payments, program investigative expenses, and other authorized expenses of the program. Crime Victims Fund: Criminal fines and penalties collected from offenders, among other sources, are deposited in the CVF. The CVF funds victims’ assistance programs and provides direct compensation to crime victims. Criminal Justice Information Services fingerprint checks fees: CJIS, a division of the FBI, collects fees from federal, state, and other authorized entities requesting fingerprint identification records for noncriminal justice purposes such as employment and licensing. Fees collected pay for the costs of providing the service and for the automation of fingerprint identification and other criminal justice information services. Diversion Control Fee Account (DCFA): Fees paid by Drug Enforcement Administration (DEA) registrants, such as manufacturers, distributors, dispensers (including physicians), importers, and exporters of controlled substances (such as narcotics and stimulants) and certain listed chemicals (such as ephedrine) are deposited in the DCFA. Fees collected are used to recover the full costs of the program, including personnel costs and operation costs such as investigative costs, travel, and the purchase of goods and services. Federal Prison Industries, Inc.: FPI, a wholly owned government corporation within the Bureau of Prisons (BOP), sells products and services manufactured by federal inmates.for FPI program expenses, such as wages for federal inmates. Three Percent Fund: DOJ collects 3 percent of most amounts paid resulting from “civil debt collection litigation activities,” including civil judgments in Medicare fraud cases and student loan collections. DOJ uses these funds to defray costs associated with its debt collection activities, such as paying the costs of the Debt Collection Management Staff (DCM) and financial litigation unit personnel and activities at the U.S. Attorneys’ Offices. United States Trustee System Fund (USTSF): The U.S. Trustee Program (USTP) receives and deposits in the USTSF fees collected generally from four sources: (1) a portion of the filing fee paid at the beginning of each bankruptcy case for chapters 7, 11, 12, and 13; (2) chapter 11 quarterly fees; (3) excess percentage fees collected by chapter 12 or chapter 13 standing trustees; and (4) interest on invested funds. These fees are used by the USTP for expenses, such as salaries and benefits, related to overseeing the bankruptcy process as specified in annual appropriations acts. To determine collections, obligations, and unobligated balance amounts for the seven alternative sources of funding, we relied on data that were reconciled to DOJ’s audited financial statements. DOJ was able to reconcile the data for six of the seven alternative sources for fiscal years 2009 through 2013. For the CJIS fingerprint checks fees, as part of our procedures, we obtained collections, obligations, and unobligated balances data from the FBI program offices for fiscal years 2009 through 2013. To validate the data provided, we requested that the FBI reconcile these amounts with the FBI’s audited statement of budgetary resources (SBR) for those respective periods. The FBI provided updated amounts for fiscal year 2013 based on its reconciliation to the FBI’s audited SBR. However, the FBI was unable to demonstrate that it could reconcile amounts it provided for fiscal years 2009 through 2012 to the amounts in its audited SBR for each of the respective years. For the purposes of this report, we will be reporting CJIS fingerprint checks fees data for fiscal years 2009 through 2012 as reported to us by the FBI. Of the seven major alternative sources of funding, the two with the highest amount of deposits were the AFF and the CVF, each receiving deposits of $10.5 billion and $10.4 billion respectively over the 5-year time period, not all of which was available to DOJ to obligate. The remaining five alternative sources of funding brought in collections totaling $9.0 billion during this same time period. Generally, collections from the seven major alternative sources of funding were obligated to support the associated programs or activities. For example, fees collected and deposited into the DCFA paid for all expenses required to run the Diversion Control Program. For all seven major alternative sources of funding, DOJ obligated about $22.8 billion, or on average about $4.6 billion a year, from fiscal years 2009 through 2013. Specifically, for five of the seven alternative sources of funding—CJIS fingerprint checks fees, DCFA, FPI, the Three Percent Fund, and USTSF—DOJ obligated about 97 percent of total collections, or about $8.8 billion of $9.0 billion collected. For the two remaining alternative sources of funding—the CVF and the AFF—DOJ obligated about $14.0 billion. The AFF and the CVF included deposits that, pursuant to law, have not been available for obligation. At the end of fiscal year 2013, about $9.7 billion from the AFF and the CVF was unavailable for obligation by DOJ. The majority of this amount came from the CVF, which will be discussed in more detail later in this report. While the majority of DOJ’s alternative sources of funding came from these seven sources, DOJ has other alternative sources of funding, which are listed in appendix I. In addition, appendix III provides more detail on collections and obligations for the seven major alternative sources of funding, including relevant legal requirements. Congress has used different options to either increase or decrease agency flexibility related to the use of DOJ’s seven major alternative sources of funding. As previously discussed, Congress establishes agency flexibility through the requirements in authorizing legislation, appropriation acts, or other laws that, for instance, require agencies to obligate the funds in a given year or over multiple years, or obligate a certain amount for a certain purpose. Congress may limit the availability of funds so they are available for obligation only in a given fiscal year—characterized as 1-year funds— such as a portion of the CJIS fingerprint checks fee amounts. In contrast, Congress may establish funding as available for obligation indefinitely—characterized as no-year funds—such as funds deposited in other major alternative sources of funding like the Three Percent Fund, which can be carried over from 1 year to the next. Congress has imposed additional annual reporting requirements for certain of the seven alternative sources of funding (see app. III). For example, DOJ is required to provide annual reports for the AFF. Table 1 shows requirements related to authorized purposes and amounts for the seven major alternative sources of funding. Selected alternative sources of funding have growing unobligated balances, some of which could benefit from improved management. We conducted case studies for three alternative sources of funding with unobligated balances: the Three Percent Fund, CJIS fingerprint checks fees, and the Crime Victims Fund. DOJ officials responsible for the Three Percent Fund have taken steps to manage the fund such as annually reviewing how much they allocate in the fiscal year. However, they have not, for example, projected collections for the following year when determining the availability of funding for the next fiscal year. In addition, DOJ lacks transparency over how fingerprint checks fees are broken out, and has not evaluated what an appropriate carryover balance should be. Finally, unobligated balances that have been made temporarily unavailable to DOJ in the Crime Victims Fund have continued to grow, and these balances have an increasing impact on DOJ’s reporting of annual discretionary budget authority. results in a civil judgment. For example, in one case that was resolved in fiscal year 2013, DOJ reportedly collected $13 million from a civil settlement involving fraud against the U.S. Postal Service. Of the $13 million that was awarded to the U.S. Postal Service, DOJ deposited $390,000 into the Three Percent Fund. Amounts from the Three Percent fund are then allocated to DOJ components that requested funds for specified activities, such as tracking civil and criminal debt collection Officials responsible for the Three Percent Fund stated that litigation.they generally review and fund component requests at the beginning of the fiscal year. As shown in figure 2, obligations of the Three Percent Fund have generally risen with increased budgetary resources. Specifically, from fiscal years 2009 through 2013, obligations increased by about $74 million, while collections in the Three Percent Fund have increased by almost $75 million over the same 5 years. DOJ officials stated that they have taken steps to manage the Three Percent Fund and analyze the availability of funding for obligations such as allocations to components, the costs of managing the systems that collect and disburse civil collections, and administrative support. Specifically, the Collection Resources Allocation Board (CRAB)—the body established by DOJ to allocate collections among eligible components to offset litigation and collection costs—manages the fund in several ways: The CRAB sets aside funding to operate the Debt Collection Management Staff for the following fiscal year prior to considering annual allocations for other debt–collection related activities. DCM is fully funded through Three Percent Fund collections and receives no other appropriation. CRAB officials consider the longer-term viability of the program when making funding decisions by, for example, considering whether programs receiving funding may bring in additional Three Percent Fund collections in future years. Programs that have potential to bring in more funding to the Three Percent Fund may be prioritized over programs that bring in less or no funding to the Three Percent Fund. The CRAB informs components making requests that any employees hired should be term employees and not holders of permanent positions. CRAB officials stated this policy stresses to components that they should not rely on Three Percent Fund allocations in the future, even if funds were allocated for such positions in the past. CRAB officials consider allocating resources for activities that may span multiple years and set aside more resources at the beginning of the year for these activities instead of funding new activities. CRAB officials identify a reserve, an amount needed in the Three Percent Fund at the beginning of the following fiscal year. While CRAB officials have taken steps to manage the Three Percent Fund, according to officials responsible for managing the fund, they do not know how, if at all, changes in unobligated balances affect identified future resource needs because they do not conduct analyses that include projected collections, reserves that align with DOJ priorities and stated needs, or the impact of previous obligation rates on unobligated balances. As shown in figure 3, the CRAB’s rate of allocations has resulted in a 12- point decrease in the percentage of unobligated balances remaining at the end of the following year from fiscal years 2009 through 2013. Specifically, while DOJ’s unobligated balances have marginally increased, the CRAB has had more total budgetary resources available during the fiscal year and has obligated a larger portion of those resources. CRAB officials stated that they conduct analyses to determine how to allocate Three Percent Fund amounts in the following year, but they could not demonstrate how, if at all, increasing obligation rates may have an impact on the availability of funding in future years. Without analyzing trends in unobligated balances, it is difficult to determine if committing larger portions of budgetary resources is sustainable or has an impact on future-year funding. In response, CRAB officials stated that the CRAB’s typical practice is to obligate only the amount that is carried forward from the previous year, and not to consider any amounts that may come into the Three Percent Fund in the following year. The agency does not conduct analyses of unobligated balances to, for example, help estimate future collections or determine future reserve needs. According to CRAB officials, they do not incorporate estimates for collection amounts from year to year because the CRAB does not have control over how much will be collected in the Three Percent Fund. Collections are determined from civil settlements and other judgments, and CRAB officials believe that soliciting information from litigating units to develop estimates may be viewed as inappropriate pressure on litigators. However, in the 5-year time period we examined, DOJ consistently collected at least $83 million annually, indicating stability in collections. While we understand DOJ’s concerns about determining precise estimates, these concerns could be mitigated by developing strategies for projecting collections without a negative perception. For example, in lieu of projecting a specific dollar amount, CRAB could determine a range between the potential lowest and highest collection amounts based on historical trends and current collection activities. Additionally, while CRAB officials identified a reserve to set aside for the following fiscal year, as shown in table 2, the Three Percent Fund’s unobligated balances at the end of the year have been notably higher than DOJ’s identified reserve in each fiscal year from 2009 through 2013. Specifically, in comparing the reserve that officials reported they needed and the unobligated balance, the amount carried over was consistently larger by a factor of at least two. Such a consistent difference between the unobligated balance and the reserve fund needed the following year may indicate that the Three Percent Fund could fund additional activities during the following year. For example, CRAB officials stated that several activities and initiatives either do not receive funding or receive a smaller portion of funding, including funding for more litigative term personnel for civil debt collection activities. Some of these activities, if funded, could result in more collections for the Three Percent Fund. CRAB officials stated that DOJ has limited discretion for when amounts are received in the Three Percent Fund because many transactions result from judgments from courts and are not controlled by DOJ. As a result, CRAB officials stated that they could not commit more funding during the year because they do not know what amounts may come in the following year and generally make funding decisions only once during the year. If the CRAB has determined that no more funds can be committed in a fiscal year than it currently allocates, then the reported reserve needed in the Three Percent Fund may be too low and not accurately reflect the Three Percent Fund operational needs. However, if the CRAB is confident that the reported reserve for the following year is correct and the reserve is much lower than the beginning unobligated balances as reported in table 2, then the CRAB may be missing opportunities to fund additional activities. GAO’s Key Questions to Consider When Evaluating Balances in Federal Accounts has emphasized the importance of regularly analyzing these balances by, for example, estimating and managing such balances—such as estimating collections and determining reserve needs—in order to effectively anticipate program needs and ensure the most efficient use of resources. The Key Questions also concluded that if an agency does not have a robust strategy in place for estimating and managing carryover balances, balances may either fall too low to efficiently manage operations or rise to unnecessarily high levels. While DOJ officials disagreed that they may allocate and obligate more because their practice is to allocate only what is in the fund at the beginning of the year, our analysis demonstrated that the Three Percent Fund’s beginning unobligated balances consistently outpace DOJ’s stated reserve needs. This is, in part, because DOJ does not consider estimates of collections in future years as part of its determination of reserve needs. DOJ’s current practice has resulted in increasing balances in the fund as it allocates a larger portion of its total budgetary resources. Without an analysis that includes projected collections, reserves that align with DOJ priorities and stated needs, and the impact of previous obligation rates on unobligated balances, it is difficult to determine the impact of committing funds on unobligated balances in the Three Percent Fund. By developing a policy for conducting regular analyses of unobligated balances by, for example, estimating future collections and determining future reserve needs, DOJ could better ensure it is able to efficiently fund as many programs as possible and best support the fund’s priorities. According to DOJ-provided data, in fiscal years 2009 through 2013, the FBI’s CJIS Division collected on average about $385 million per year in fingerprint checks fees. Of this, on average $154 million was for cost recovery and $231 million was for automation. CJIS determines fingerprint checks fees using three major elements: (1) estimates of the cost to provide the fingerprint checks services—this makes up the cost recovery portion; (2) depreciation of current infrastructure for fingerprint identification, such as the Integrated Automated Fingerprint Identification System, and other criminal justice information services systems—this makes up the automation portion; and (3) the expected volume of individual transactions. Criminal Justice Information Services (CJIS) Fingerprint Checks Fees Purpose Fingerprint checks fees are paid by entities requesting a fingerprint check for individuals for non-criminal justice purposes. The fee is made up of two parts: The cost recovery portion covers the cost of providing the service, which includes operational labor cost, support labor cost, and nonlabor costs such as printing, utilities, supplies and equipment. The automation portion covers expenses for automation of fingerprint identification and criminal justice information services such as the Next Generation Identification, a system that offers biometric identification services. CJIS also uses automation fees for information- sharing technology and for operational support. The two portions of the fee have different statutory requirements. The cost recovery portion of the fee is 1-year money that must be obligated in the same year it is collected to cover the cost of providing the service. The automation portion of the fee is no-year money that can be carried over from year to year. It is collected for the purpose of helping to defray the cost of any new automation initiative in the future. The law provides the FBI with broad authority to set the automation portion of the fee. According to CJIS officials, CJIS reviews the fingerprint checks fee every year. As shown in figure 4, according to data provided by CJIS, for fiscal years 2009 through 2013, about 40 percent of the total collected in fingerprint checks fees—about $770 million of about $1.93 billion—was from cost recovery collections to cover the costs of providing the service. The automation portion of the fingerprint checks fee composed the other 60 percent, or about $1.16 billion. Starting in March 2012, the fee for an electronic fingerprint check was $14.50, of which $6.38 was cost recovery and $8.12 was automation. About 64 percent of the volume of fingerprint checks comes from other federal agencies with the remaining 33 percent coming from state, tribal, and local governments, and other entities that submit fingerprint checks. Unobligated balances in the Crime Victims Fund have continued to grow and have impacted DOJ’s reporting of annual discretionary budget authority. From fiscal years 2009 through 2013, the CVF—which is funded by collections of criminal fines, forfeited bail bonds, penalties, and assessments—collected about $3.3 billion in budgetary resources and received additional deposits not available as a budgetary resource of $7.1 OJP obligated over $3.5 billion, totaling about $10.4 billion in deposits.billion of these funds. When including balances from fiscal years prior to 2009, the CVF had a temporarily unavailable balance—composed of funds received in excess of obligations made—of nearly $9 billion at the end of fiscal year 2013. Crime Victims Fund (CVF) Administration The Office of Justice Programs (OJP) is the primary component within the Department of Justice (DOJ) responsible for managing DOJ grant programs, with the Office for Victims of Crime being the primary component within OJP that administers and manages CVF funding. Crime Victims Fund (CVF) Purposes The Victims of Crime Act of 1984 (VOCA), as amended, establishes the CVF and authorizes the fund to be used for specific crime victims assistance purposes and provides formulas for the Department of Justice (DOJ) to allocate funding among those purposes. These include 1. up to $20 million for grants under the Children’s funding for victim assistance services at the U.S. Attorneys’ Offices, the Federal Bureau of Investigation, and for a victim notification system. programs such as $425 million for state-administered victim assistance grants and almost $160 million in state victim compensation grants. Congress placed limitations on DOJ’s ability to use amounts in the CVF in excess of the annual obligation limits. Specifically, annual appropriations legislation prohibited DOJ from making obligations in excess of the obligation limitation, and as a result, DOJ could not obligate the excess funds during the course of the given fiscal year. For instance, CVF deposits totaled about $1.75 billion during fiscal year 2009. However, because federal law limited DOJ’s allowable CVF obligations to about $640 million that year, DOJ was unable to obligate over $1 billion of CVF deposits during the remaining fiscal year. Figure 5 shows the annual deposits and obligations in the CVF. In fiscal years 2009 through 2013, annual CVF deposits exceeded the limit in allowable annual obligations. During this time period, funds not available for obligation by DOJ in this account have served as a credit or offset to DOJ’s total discretionary budget, as reported in DOJ’s budget submissions. Specifically, during the annual appropriations process, the CVF balance unavailable for obligation by DOJ during the year counts as a “savings.” Consistent with scorekeeping guidelines used during the congressional budget process, this savings resulted in DOJ reporting a lower level of net budget authority because the unavailable CVF balance For example, is applied as a credit to DOJ’s total discretionary budget.in fiscal year 2013, DOJ received about $25 billion in enacted total discretionary budget authority according to DOJ’s congressional budget justification. DOJ obligated these funds to pay for the department’s programs and activities. Balances primarily composed of CVF funds provided a credit of about $10 billion.account and were not spent. These unavailable balances remained in the CVF The credit from these balances lowered DOJ’s reported net discretionary budget authority to about $15 billion. As a result, DOJ’s total discretionary budget authority provided in law of $25 billion was $10 billion higher than the reported net discretionary budget authority of $15 billion. Since fiscal year 2009, the growing CVF unavailable balance has resulted in increasingly higher offsets to DOJ’s budget authority and has represented a higher percentage of DOJ’s total discretionary budget authority. For example, according to DOJ’s congressional budget justification, in fiscal year 2009, balances composed mostly of CVF funds created an offset of about $2.7 billion, or 10 percent of DOJ’s total discretionary budget authority. However, in fiscal year 2013, the $10 billion offset made up about 39 percent of DOJ’s total discretionary budget authority. For more details, see figure 6. While the CVF funding has been subject to an obligation limitation each year, OJP officials responsible for managing the programs funded by the CVF have started to take some steps in determining how more of the CVF unavailable balance could be obligated in the future should the limit be increased. Specifically, OJP officials stated that victim assistance stakeholders such as state administrators of crime victims’ grants have told them that the current funding levels provided in law are not adequately addressing the needs of crime victims nationwide. However, OJP officials state that stakeholders have not been able to verify how much funding need exists nationwide, in part because of current restraints on administrative spending in VOCA that limit state administrators’ ability to monitor the effectiveness of grants or evaluate crime victim needs. In response, OJP has taken steps to determine crime victim needs. For instance, in 2010, OJP developed an initiative called Vision 21, where the goals are to identify recommendations to help OJP adopt a systematic approach in addressing crime victim needs. This culminated in a report released in 2013 that contained recommendations for better addressing crime victim needs, including overcoming challenges related to constraints in CVF funding due to VOCA restrictions. In addition, in 2012, OJP entered into an interagency agreement with the U.S. Bureau of Justice Statistics to conduct a survey of victim assistance administrators and other stakeholders, the purpose of which includes validating crime victim needs nationwide. OJP officials stated that the results of the survey will help determine and validate funding needs and help OJP provide empirically driven policy options to address such needs. OJP officials responsible for CVF funding stated that the results from the survey may be obtained as late as 2016. The seven major sources of DOJ’s alternative funding bring in more than $3 billion annually. This represents a significant portion of DOJ’s budgetary resources. For example, in fiscal year 2013, 15 percent of DOJ’s total budgetary resources came from alternative sources of funding. DOJ used these resources to support several programs, including funding for victims compensation and assistance, and generally help DOJ fulfill its law enforcement and criminal and civil litigation missions. DOJ’s annual use of billions of dollars from these funds highlights the importance of ensuring program needs are met and resources are used effectively. In some cases, DOJ brings in significantly more in collections than it obligates, underscoring the importance of properly managing these funds. By developing a policy to analyze unobligated balances from the Three Percent Fund, DOJ could better manage balances to ensure efficient and effective use of resources to support program activities. In addition, CJIS is missing opportunities for meaningful feedback that could affect the outcome of changes in fees and program implementation by not transparently communicating with stakeholders and customers the breakout of cost recovery and automation fees. Finally, by developing a policy to estimate the extent to which carryover balances from CJIS’s fingerprint automation pool of money are appropriate and implementing that policy, CJIS could better ensure that its automation fees are set at a level to avoid excessive revenues. To help ensure the efficient use of resources for the Three Percent Fund, we recommend that the Attorney General develop a policy and implement procedures to regularly analyze unobligated balances and develop collection estimates in order to determine an appropriate reserve amount and inform estimates of future funding needs. To improve transparency and ensure the effective use of automation fees for the CJIS fingerprint checks fees, we recommend that the Director of the Federal Bureau of Investigation take the following actions: Publish in the Federal Register, or other documents such as annual reports, how much is assessed for automation and cost recovery in each transaction to better communicate the cost of the service to customers and stakeholders. Develop a policy to analyze the unobligated balances coming from the automation portion of the fee to inform program needs, including improving methods for anticipating automation collections, and establishing a range of appropriate carryover amounts to support program needs. We provided a draft of this report to DOJ for review and comment. We received written comments from DOJ, which are reproduced in full in appendix IV. DOJ also provided technical comments on this report that we incorporated as appropriate. Our first recommendation directed the Attorney General to develop a policy and implement procedures to regularly analyze unobligated balances and develop collection estimates for the Three Percent Fund in order to determine an appropriate reserve amount. DOJ agreed that it could improve how it estimates the amount of reserve funds needed for the next fiscal year. DOJ stated it is going to adjust the current methodology for improving reserve estimates by, for example, including additional costs such as one quarter of the previous year’s administrative and professional contract costs. DOJ also provided various reasons why it does not query or calculate revenue estimates. For example, DOJ does not query litigating components for the number of cases that will be settled because the agency does not want to be perceived as inappropriately encouraging larger government civil collections. Additionally, DOJ does not calculate such estimates due to the high level of variability in the civil debt litigation cases that make it difficult to use historical information to estimate reserves. The report recognizes these concerns. Specifically, on page 20, we acknowledge DOJ’s concern about soliciting information from its litigating units. However, we believe that DOJ could develop an estimated range of potential collections based on historical trends and current collection activities. Estimates are not expected to be perfect predictions of the future; however, analyzing historical data can help the agency to identify patterns and anomalies and to understand the magnitude of significant events. DOJ concurred with our second recommendation and agreed to break out the automation and cost recovery portions of the CJIS fingerprint checks fees more explicitly in the future. DOJ stated it believed the FBI had been transparent with its stakeholders and that this recommendation is consistent with current business practices. DOJ concurred with our third recommendation, which called for the FBI to develop a policy to analyze the unobligated balances coming from the automation portion of the CJIS fingerprint checks fees and establish a range of appropriate carryover amounts to support program needs. Specifically, DOJ stated it would analyze the balances coming from the automation portion of the fee. DOJ also noted that it does not believe that establishing a range of carryover balances would enhance the current financial business practices of the CJIS fund. We believe the FBI would benefit from assessing what an appropriate range should be to ensure the funds will be available for agreed upon future investments. In its comments, DOJ also referred to the report’s discussion on the CVF and its associated scorekeeping rules. In particular, DOJ noted that the department reports both net budget authority and total discretionary budget authority. We agree that both numbers can be found in the annual budget materials, appropriately labeled, and we included both in our report on pages 34-35. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Attorney General, selected congressional committees, and other interested parties. In addition, this report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any further questions about this report, please contact me at (202) 512-9627 or maurerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributions to this reported are listed in appendix V. In fiscal year 2013, according to DOJ-provided data, the department collected approximately $4.9 billion through 21 “alternative sources of funding,” which, for the purposes of this report, refers to collections by DOJ and other agencies that are available to DOJ to obligate and expend. Specifically, DOJ collections for these 21 sources of funding ranged from 0 to about $1.9 billion in fiscal year 2013. For the seven major alternative sources of funding, we used information from DOJ’s annual financial statements in its corresponding performance and accountability reports or agency financial reports. For the remaining 14 alternative sources of funding, which are otherwise not included in this report, we relied primarily on DOJ-reported information from its financial information systems (See app. II for more information on our scope and methodology). Table 3 describes each of the 21 alternative funding sources, as well as total collections and funding availability in fiscal year 2013. To address the first question, we identified various alternative sources of funding across the Department of Justice (DOJ) accounts or programs by interviewing DOJ officials knowledgeable about the DOJ budget and reviewing various budget documents. We identified 21 accounts or programs that received “alternative sources of funding,” which, for the purposes of this report, refers to collections by DOJ and other agencies that are available to DOJ to obligate and expend. We narrowed our review to seven alternative sources of funding using the following decision criteria: Collections must be at or above $100 million annually in order to focus on the alternative sources bringing in the most money to DOJ, the funds must be managed primarily by DOJ, and the funds must We excluded alternative sources that not be entitlements or trust funds.funded entitlement programs from our review because entitlement authorities are controlled by statute, and DOJ does not have authority to determine eligibility requirements or the amounts provided to recipients. Further, we excluded alternative sources of funding that are deposited into trust funds—such as the Federal Prison Commissary Fund—because trust funds generally do not impose a fiduciary responsibility on the government. The scope of our review covered funding from fiscal years 2009 through 2013 so that we could include enough years to identify any recent trends in collections, obligations, and unobligated balances. To report the financial information such as collections and obligations related to alternative sources of funding for the 5 years, we analyzed DOJ annual financial statements in its corresponding performance and accountability reports or agency financial report and data provided by DOJ. We compared the amounts in the selected seven alternative sources of funding against DOJ’s statement of budgetary resources using DOJ’s audited information reported in its annual financial statements. For six of the seven alternative sources of funding—the Assets Forfeiture Fund, the Crime Victims Fund, the Diversion Control Fee Account, the Federal Prison Industries, the Three Percent Fund, and the United States Trustee System Fund—we determined that the data on the amounts reported for the years under review DOJ-wide were sufficiently reliable for determining how much of DOJ’s budgetary resources come from these alternative sources of funding. We also determined that for fiscal year 2013, the fingerprint-based Criminal History Record Information checks provided by the Federal Bureau of Investigation (FBI) Criminal Justice Information Services (CJIS) Division (CJIS fingerprint checks fees) were also reliable for our purposes. However, the amounts for fiscal years 2009 through 2012 for the CJIS fingerprint checks fees were provided by DOJ sources and could not be reconciled to the audited financial statements. See the section on DOJ’s total budgetary resources regarding data limitations. To report on DOJ’s flexibility in using alternative sources of funding for DOJ activities, we identified key statutory characteristics that increase or decrease agency flexibility with respect to these funds by reviewing principles of appropriations law and our prior work.statutory language and identified legal requirements applicable to the seven funds in the scope of this objective for each of these key areas: (1) purpose—for what purposes the funds may be obligated, (2) amount— how available amounts are determined and what action triggers the availability of funding, (3) time—what is the period of availability for the funding, and (4) review—what specific reporting requirements apply to the funding. We also interviewed agency officials about the alternative sources of funding to understand their interpretation of the laws. See GAO, Justice Assets Forfeiture Fund: Transparency of Balances and Controls over Equitable Sharing Should Be Improved, GAO-12-736 (Washington, D.C.: July 12, 2012), and Department of Justice: Working Capital Fund Adheres to Some Key Operating Principles but Could Better Measure Performance and Communicate with Customers, GAO-12-289 (Washington, D.C.: Jan. 20, 2012). guide for federal user fees and (2) our past work identifying fee design options for managing carryover balances in fee accounts. To determine financial activity for the CVF, we compared both reconciled financial information and separate DOJ-provided information on receipts. To report on the impact of unavailable balances from the CVF and the AFF to the department’s annual discretionary budget authority, we used reported information from the President’s Budget for DOJ’s total discretionary budget authority and the scorekeeping credit from the three sources (the Crime Victims Fund, the Assets Forfeiture Fund, and the Working Capital Fund). We used information from the President’s Budget instead of the audited financial information reported in the previous objective because credits provided to DOJ’s discretionary budget authority were not recorded in DOJ’s audited statements. Moreover, the President’s Budget was used by decision makers for determining DOJ’s annual discretionary budget authority. To list the collections for all 21 sources in fiscal year 2013 as shown in appendix I, we relied primarily on DOJ-reported data for the 14 sources that otherwise were not included in this report. We asked DOJ about the reliability of the data for these 14 sources and determined that the data were sufficiently reliable to convey a description of each funding source and the general magnitude of funding source collections and obligations. In addition, for the 7 major alternative sources of funding in appendix III, we relied primarily on DOJ’s statements of budgetary resources from fiscal years 2009 through 2013. However, in a few instances, we provided additional details that were obtained from other sources. Those sources are discussed, when appropriate, in the particular section of the appendix. We conducted this performance audit from September 2013 through February 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This appendix describes background information, funding characteristics, budgetary information, and legal requirements for the seven accounts within the Department of Justice (DOJ) receiving major alternative sources of funding: Assets Forfeiture Fund; Crime Victims Fund; Criminal Justice Information Services fees; Diversion Control Fee Account; Federal Prison Industries, Inc.; Three Percent Fund; and United States Trustee System Fund. Every year, federal, state, and local law enforcement agencies seize millions of dollars in assets that are forfeited through the DOJ Asset Forfeiture Program (AFP). Forfeited assets can include, but are not limited to, businesses, cash, bank accounts, automobiles, boats, airplanes, jewelry, art objects, and real estate.program is preventing and reducing crime through the seizure and forfeiture of assets that were used in or acquired as a result of criminal activity. The Comprehensive Crime Control Act of 1984 established the Assets Forfeiture Fund (AFF) to receive the millions of dollars in assets that are forfeited through the AFP. Funds are available for program-related expenses, including payments to victims and lien holders and the costs of storing and maintaining forfeited assets, and certain law enforcement activities, such as the payment of overtime salaries, travel, fuel, among other things, for state and local law enforcement officers when they participate in a joint operation with federal law enforcement agencies participating in the fund. After the AFF sets aside enough to ensure amounts are available in subsequent fiscal years for the specified purposes, it can use the excess generated by that fiscal year’s operations for other purposes. This excess is called the excess unobligated balance. Subject to certain notification procedures to Congress, any excess unobligated balance remaining in the AFF is available to DOJ “for any federal law enforcement, litigative/prosecutive, and correctional activities, or any other authorized purpose of .” The AFF is financed primarily through the forfeiture of assets that were seized as a result of criminal activity. From fiscal years 2009 through 2013, collections in the AFF totaled about $10.5 billion, which does not include amounts deposited in the AFF and then made unavailable pursuant to law. At the end of fiscal year 2013, about $792 million was temporarily unavailable because of annual enacted temporary rescissions. From fiscal years 2009 through 2013, obligations from the AFF totaled about $10.6 billion. Obligations made from the AFF cover three major categories: (1) payments to third parties, including payments to satisfy interested parties such as lien holders of forfeited properties, as well as the return of funds to victims of large-scale fraud; (2) equitable sharing payments to state and local law enforcement agencies that participate in law enforcement efforts resulting in the forfeitures; and (3) all other program operations expenses that include expenditure categories such as asset management and disposal, the storage and destruction of drugs, and investigative expenses leading to a seizure. According to DOJ data, of the funds obligated during this time period, about 44 percent went for payments to third parties, about 26 percent went to equitable sharing, and about 30 percent covered all other program operation expenses. Trends in Annual Collections, Obligations, and Unobligated Balances From fiscal years 2009 through 2013, obligations have generally tracked closely with collections. Generally, AFF collections have been increasing, with a large spike in fiscal year 2012, and a corresponding spike in obligations, attributable to a $2.2 billion deposit into the AFF related to the Bernard Madoff financial fraud case. End-of-year unobligated balances were over $1 billion for fiscal years 2009 through 2011 and then dropped to about $762 million in fiscal year 2012 and $887 million in fiscal year 2013. As we previously reported, DOJ carries forward unobligated balances in order to ensure solvency, equitable sharing, and third-party payments in the following fiscal year. Figure 7 shows AFF collections, obligations, and unobligated balances for fiscal years 2009 through 2013. The Crime Victims Fund (CVF) was established by the Victims of Crime Act of 1984 (VOCA) to provide assistance and grants for victim services throughout the United States. It is managed by the Office for Victims of Crime (OVC) within the Office of Justice Programs (OJP). The CVF supports several state and federal crime victim assistance–related grants and activities. The VOCA outlines these activities and prescribes specific funding limitations and requirements. Funding from the CVF is allocated for specific purposes outlined in statute: 1. Based on amounts collected, up to $20 million is available to fund programs authorized under the Children’s Justice Act, as amended. Up to $17 million is transferred to the Department of Health and Human Services to administer state grants, while OVC administers up to $3 million to support similar grants benefiting Native American tribal lands. Programs include funding activities to revise tribal codes to address child sexual abuse, providing child advocacy services for children in court proceedings, and developing procedures for reporting, investigating, and prosecuting child abuse cases, among others. 2. Funds required for managing victim assistance programs in the Federal Bureau of Investigation (FBI) and Executive Office for U.S. Attorneys (EOUSA) to improve crime victims services, and for amounts to run the Federal Victim Notification System. The notification system provides victims of crimes computer automated services on the investigative, prosecutorial, and corrections aspects of related cases. It is run by EOUSA, the Federal Bureau of Prisons, and the FBI. After these activities have been funded, the remaining CVF funding is to be determined as follows. 3. A 47.5 percent share of funds is available for a grant program for states to provide crime victim compensation. The law provides that CVF is available for up to a 60 percent match of what the state provided in compensation. Any remaining funding set aside for victims compensation up to the 47.5 percent may be used to support victim assistance grants. Compensation grants reimburse victims for out-of- pocket expenses such as medical and mental health counseling, lost wages, and funeral and burials costs. 4. Another 47.5 percent is available for a grant program for states to provide victim assistance. Grants are provided to states to administer to domestic violence shelters, rape crisis centers, and child abuse programs, among other advocacy groups that support comprehensive services to victims. 5. Last, 5 percent is available to fund discretionary grant programs to support federal crime victim assistance program evaluation, compliance efforts, and training and technical assistance services, among other things, including services for victims of federal crime. At least half of these funds must be allocated for specified activities, including training, technical assistance, and demonstration or evaluation projects, and improving outreach and services. In addition to these amounts, DOJ is authorized to maintain a reserve of $50 million for the Antiterrorism Emergency Reserve Fund. These funds are available for grants to states and other entities that provide assistance to victims of crime to provide emergency relief—including crisis response efforts, assistance, and training—to victims of terrorist acts or mass violence occurring outside the United States, as well as for carrying out a program to compensate victims of international terrorism occurring outside the United States. This reserve can be replenished annually. While VOCA authorizes funds collected in the CVF to be available until expended, annual appropriations acts have included obligation limitations. See table 4 for annual obligation limitations from fiscal years 2009 through 2013. The CVF is financed primarily by the federal courts, U.S. Attorneys’ Offices, and Federal Bureau of Prisons collections of fines, penalty assessments, and bond forfeitures collected from convicted federal offenders. From fiscal years 2009 through 2013, deposits in the CVF totaled about $10.4 billion.fines are small amounts for bail forfeitures or other criminal fines, larger While DOJ officials stated that most of these amounts have contributed to rising collection amounts. For instance, in fiscal year 2010, the largest single deposit into the CVF was over $1 billion and made up about half of the total deposits during the fiscal year. From fiscal years 2009 through 2013, DOJ obligated over $3.5 billion in CVF funding. According to DOJ data, the majority of CVF funding was allocated for state grants to victims of crimes assistance and compensation. Specifically, DOJ data show that over $2.9 billion, or over 80 percent of all obligations, was allocated through victim assistance and compensation grant programs. See figure 8 for a breakout of CVF obligations by category. Trends in Annual Collections, Obligations, and Unavailable Balances As discussed previously in the report, from fiscal years 2009 through 2013, the CVF received deposits of about $10.4 billion in total. Annual deposits varied from year to year, the lowest total occurring in fiscal year 2013 at about $1.5 billion. Fiscal year 2012 marked the year with the largest CVF deposit amount, totaling almost $2.8 billion. Figure 9 illustrates annual deposit totals. As noted above, annual appropriation acts have included obligations limitations for CVF funds. In accordance with the limits placed on the fund, DOJ obligations have steadily increased from fiscal years 2009 through 2013. DOJ obligations from CVF funding were around $637 million in fiscal years 2009. In 2013, obligations increased by nearly $100 million to $736 million. As discussed in our report, unavailable balances in the CVF have increased steadily in each year, as deposits into the CVF outpace obligations. CVF balances increased from just over $3 billion in 2009 to about $9 billion in 2013.result of deposits in excess of obligation limits on the fund. Within the Federal Bureau of Investigation (FBI), the Criminal Justice Information Services Division (CJIS) provides criminal justice information services to state, tribal, federal, local law enforcement, authorized noncriminal justice entities, and intelligence community partners. CJIS also collects fees from authorized users requesting fingerprint-based Criminal History Record Information (CHRI) checks for noncriminal justice purposes. The FBI has collected user fees for fingerprint checks since 1982. The FBI is authorized to establish and collect fees for providing fingerprint-based CHRI checks and other identification services submitted by authorized users for noncriminal justice purposes, including employment and licensing. The FBI may set such fees at a level to include an amount to establish a fund to defray expenses for the automation of fingerprint identification and criminal justice information services and associated costs. To report collection, obligation, and unobligated balance amounts for the CJIS fingerprint checks fees for fiscal years 2009 through 2013, we requested and received data provided by the FBI. In order to determine that the data were reliable, we requested that the FBI reconcile these amounts with the FBI’s audited statement of budgetary resources (SBR). FBI officials provided updated amounts for fiscal year 2013 based on their reconciliation to the FBI’s SBR; however, officials were unable to demonstrate that they could reconcile amounts for fiscal years 2009 through 2012. Accordingly, in table 5, we are providing the numbers that were given to us by the FBI for fiscal years 2009 through 2012 but we cannot determine if the numbers are reliable. The numbers reported for fiscal year 2013, as seen in table 6, were reconciled to the audited SBR. The Drug Enforcement Administration (DEA) is the primary agency for enforcing the provisions of the Controlled Substances Act that pertain to the diversion of controlled pharmaceuticals, such as narcotics, stimulants, depressants, and regulated chemicals such as ephedrine. DEA’s Office of Diversion Control oversees the Diversion Control Program (DCP), and carries out the mandates of the Controlled Substances Act by preventing the diversion of controlled substances and listed chemicals into the illicit market while ensuring a sufficient supply of the substances and chemicals for legitimate medical, scientific, research, and industrial purposes. The DCP is funded through registration fees that manufacturers, distributors, dispensers (such as physicians), importers, and exporters of controlled substances and certain regulated chemicals pay into an account called the Diversion Control Fee Account (DCFA). The purposes of the funds deposited in the DCFA are for the operation of the DCP. Federal law directs DEA to set the fees at a level that ensures the recovery of the full costs of operating the various aspects of the program. Collections over $15 million are to be deposited in the DCFA, which means that the first $15 million goes to the Treasury and the rest of the fees are available to DEA. Fees charged are periodically refunded by the Treasury to DEA to reimburse expenses incurred in the DCP, in accordance with estimates made in DEA’s budget request. Changes in the amounts designated in the budget requests can be made only after notification to the Appropriations Committees, 15 days in advance. The DCFA fee schedule is contained in regulations that DEA issues, and when amending the fee amounts, DEA issues a notice of proposed rulemaking describing the process for determining the fee amounts and then issues a final rule setting the fees. DEA’s most recent rule was issued in 2012. The DCP is fully funded by fees relating to the registration and control of the manufacture, distribution, dispensing, import, and export of controlled substances and listed chemicals. Fees vary based on the registrant class (e.g., researcher, practitioner, distributor, manufacturer, etc.) and range from $244 annually for a researcher, for example, to $3,047 annually for a manufacturer of chemical and controlled substances.2009 through 2013, DEA collected a total of about $1.39 billion in fees. From fiscal years 2009 through 2013, DEA obligated a total of about $1.37 billion. According to DOJ data, about 58 percent of obligations were for personnel costs of salaries and benefits, and the other 42 percent covered nonpersonnel costs such as rent, equipment, operations and maintenance of equipment, and purchase of goods and services. Trends in Annual Collections, Obligations, and Unobligated Balances As can be seen in figure 10, collections have been slightly increasing over time. For example, in fiscal year 2009, DEA collected about $235 million in fees and in fiscal year 2013, collected about $328 million in fees. Likewise, obligations have also increased slightly over time. Generally, unobligated balances have remained relatively stable and averaged about $67 million a year. The highest unobligated balance was at the end of fiscal year 2009, at about $88 million, and the lowest was at the end of fiscal year 2011, at about $42 million. DEA maintains an unobligated balance, called the operational continuity fund, in order to avoid operational disruptions throughout the year that might occur because of fluctuations in collections and obligations. Figure 10 shows collections, obligations, and unobligated balances for fiscal years 2009 through 2013. FPI, managed by the Federal Bureau of Prisons (BOP) and governed by a presidentially appointed Board of Directors, is a wholly owned FPI’s mission is government corporation created by federal law in 1934.to protect society and reduce crime by preparing inmates in federal penal and correctional institutions and disciplinary barracks for successful reentry into society through job training. Specifically, FPI provides inmates employment and job skills through the production of market- priced high-quality goods, such as furniture, clothing, electronics, and vehicular and metal products, and through services such as printing, data processing, call centers, and laundry. FPI’s factories are operated by civilian supervisors and managers responsible for training and overseeing the work of inmates. Federal law generally requires agencies to purchase products from FPI. According to FPI, it was designed to be a “mandatory source” of federal supply for the products it manufactures to help ensure a steady work flow and partially offset some of the competitive disadvantages associated with operating in a correctional environment, such as lower productivity levels. In fiscal year 2013, FPI products were organized into five business sectors: clothing and textiles, electronics, (which includes fleet management and vehicular products), office furniture, recycling, and As of September 30, 2013, FPI had industrial and service services.operations at 78 factories located at 62 prison facilities, and employed about 13,000 inmates. See 18 U.S.C. § 4124 and 48 C.F.R. §§ 8.601-08. administrative costs, including salaries for management personnel, travel expenses, and supplies. FPI funds are generally available until expended without further action from Congress. That is, FPI has the authority to carry over balances from 1 fiscal year to the next. FPI is fully funded by and operated as a revolving fund—that is, it charges for the sale of products or services and uses the proceeds to finance its spending, usually on a self-sustaining basis—and does not receive an annual appropriation. The majority of FPI’s funding is derived from the sale of products and services to other federal departments, agencies, and bureaus, and FPI’s sales revenue has declined from fiscal years 2009 through 2013. In addition to sales revenue, FPI received income from the interest earned by investing its carryover balances. In fiscal year 2013, three of FPI’s five business sectors—clothing and textiles, electronics, and office furniture— reported a decline in sales revenue compared with fiscal year 2009 revenue. Sales revenue from FPI’s activities is obligated to defray all operating costs, including the purchase of raw materials and equipment, staff salaries and benefits, and inmate wages, among other things. For example, factories utilize raw materials and parts purchased from the private sector to produce finished goods, such as office furniture. Trends in Annual Collections, Obligations, and Carryover From fiscal years 2009 through 2013, FPI’s total proceeds of sales and operation costs decreased each year, and these operating costs have generally decreased at a faster rate than its sales revenues declined. Because FPI’s operating costs have declined at a greater rate than its sales revenues have declined, FPI’s unobligated balance has increased during this time period. Specifically, at the end of fiscal year 2013, FPI’s unobligated balance had increased by more than $139 million compared with its end-of-year balance in fiscal year 2009. According to FPI’s annual financial statements, a decline in overall federal spending, coupled with declining interest rates, has negatively affected FPI’s sources of funding. In addition, the passage of legislation that affected FPI’s designation as a mandatory source of federal supply for the products it manufactures contributed to declines in sales during this time period. For example, before purchasing an item from FPI, agencies are generally required to conduct market research to determine whether the item is comparable to items available from the private sector that best meet the government’s price, quality, and time-of-delivery specifications.FPI’s sales revenues and obligations have generally decreased, while unobligated balances have increased during this time period. The DOJ Three Percent Fund is an account composed of 3 percent of amounts collected “pursuant to civil debt collection litigation activities.” According to DOJ officials, civil debt litigation activities may include activities such as bringing civil cases to court or conducting administrative activities such as tracking unpaid debts and issuing notices for payments due. Civil debt does not include criminal fines and penalties or forfeiture of properties and assets. Eligible transactions from the payor to the government are assessed a 3 percent fee, which is used to offset costs for DOJ to manage the collection and distribution of funds to federal agencies awarded the civil judgment as well as civil and criminal litigation activities conducted by the department. Civil debt transactions provided to the Three Percent Fund are managed by the DOJ Justice Management Division Debt Collection Management Staff (DCM). DCM provides the operational, policy, and client support services—including training and reporting—to facilitate the collection of debts owed to the United States government. DCM manages the computer systems used to manage transactions and collections retained in the Three Percent Fund. DOJ annually disburses Three Percent Fund collections to DOJ components that conduct activities related to civil and criminal debt collections—which, according to DOJ, also include investigatory, litigation, and administrative activities related to obtaining these debts— based on eligibility of costs and DOJ priorities. DOJ established the Collection Resources Allocation Board (CRAB) to review components’ requests for funds based on intended uses, awarding funds to the components to offset costs for activities covered in the requests for funding for the year. Funds are offsetting collections that reduce the costs for conducting these activities, which otherwise do not obtain funding or are funded through other appropriations provided to the DOJ component conducting the activities. Three Percent Fund collections are no-year funds available for paying the costs of processing and tracking civil and criminal debt collection litigation and, thereafter, for financial systems and for debt collection–related personnel, administrative, and litigation expenses. The CRAB is responsible for determining the activities that receive agency funding. Any amounts unobligated at the end of the fiscal year are retained as an unobligated balance in the Three Percent Fund. They are available the following year to DOJ to obligate and expend. Three Percent Fund collections are received from payors that owe debts resulting from civil settlements, judgments, or referred debt to DOJ. From fiscal years 2009 through 2013, Three Percent Fund collections totaled more than $623 million. According to DCM officials, debt collections are from private individuals as well as from businesses. DCM officials stated that while most collections are from small debts, single transactions for larger civil debts may provide several million dollars to the fund. For instance, according to information provided by DCM, in 2013, there were over 15,000 separate transactions of funds in the Three Percent Fund. According to these transactional data, fewer than 30 transactions provided collections of $1 million or more. The largest transaction resulted in a deposit of over $22 million to the Three Percent Fund. The CRAB awards Three Percent funds based on priorities established by the board. According to DOJ officials responsible for the fund, amounts are provided using the following broader priorities: 1. Costs to manage debt collection activities, including full funding for DCM costs and the computer system infrastructure to manage transfers of funds from payors to the various federal agencies receiving civil collections. 2. Debt collection activities such as tracking debtors’ funds, training for properly conducting debt collections and understanding the resources available to federal agencies for obtaining debts, and conducting administrative activities such as sending demand letters to debtors. 3. Costs of conducting civil litigation and investigation where collections are presumed to be obtained. This includes both referred debt where the debt has already been established, and affirmative civil litigation where the debt has not yet been established in court. Such activities include personnel, court costs, and administrative activities that support such litigation. 4. Costs of conducting criminal litigation or investigation where collections are presumed to be obtained from the defendant. Such activities include personnel and administrative activities that support such litigation. From 2009 through 2013, seven DOJ components have received Three Percent Fund allocations, in addition to DCM being fully funded. Of the total $600 million allocated during that time, about 33 percent—about $200 million—was to the Executive Office for U.S. Attorneys (EOUSA). About 26 percent—over $150 million—was awarded to the Civil Division. Officials responsible for awarding amounts from the Three Percent Fund said that this reflects the prioritization process as the U.S. Attorneys conduct most of the litigation activities for DOJ, and the Civil Division is the component within DOJ that specializes in larger, more complex civil litigation activities. See figure 12 for a breakout of amounts in the Three Percent Fund by the receiving component within DOJ. Trends in Collections, Obligations, and Unobligated Balances From fiscal years 2009 through 2013, both collections and obligations in the Three Percent Fund generally increased at similar rates, while unobligated balances fluctuated but generally increased during the 5-year period. Specifically, collections increased from $83 million in fiscal year 2009 to $158 million in fiscal year 2013—an increase of about 90 percent over the 5-year period.fiscal year 2009 to about $158 million in fiscal year 2013—an increase of about 88 percent. Over the 5-year period, unobligated balances increased from about $136 million to $161 million. See figure 13 for collections, obligations, and end-of-year unobligated balances from fiscal years 2009 through 2013. The U.S. Trustee Program’s (USTP) mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders—debtors, creditors, and the public. The USTP investigates and civilly prosecutes bankruptcy fraud and abuse; refers suspected criminal activity to the U.S. Attorney and other law enforcement partners; monitors and takes action to address the conduct of debtors, creditors, attorneys, credit counselors, and others; oversees private trustees; and ensures compliance with applicable laws and regulations in all bankruptcy cases, from individual consumer filings to large corporate reorganizations. In fiscal year 2013, the USTP oversaw the administration of more than 1 million bankruptcy cases filed by both individual and business debtors in federal judicial districts. The USTP is primarily funded through fees paid by bankruptcy debtors that are deposited into the United States Trustee System Fund (USTSF). According to USTP annual budget justifications, the total number of bankruptcy cases filings increased from fiscal year 2009 to 2010, and has steadily decreased from fiscal years 2010 through 2013. In fiscal year 2013, chapter 7 case filings constituted 69 percent of total bankruptcy cases filed, compared with 30 percent of chapter 13 cases, and 1 percent or less of chapter 11 and chapter 12 filings. The USTP may obligate deposits in the USTSF for specified program- related expenses, such as salaries and benefits, as specified in annual appropriation acts. While amounts deposited in the USTSF remain in the fund until expended, they are not available to the USTP until appropriated. detailed report on the amounts deposited in the USTSF and a description of related expenditures to Congress 120 days after the end of each fiscal year. The USTP may also invest funds not currently needed for program purposes. 28 U.S.C. § 589a(c). USTP receives and deposits into the USTSF fees collected generally from four sources: (1) a portion of the filing fee in every bankruptcy case paid at the beginning of each case for chapters 7, 11, 12, and 13, (2) chapter 11 quarterly fees, (3) excess percentage fees collected by chapter 12 or chapter 13 standing trustees, and (4) interest on invested funds. According to USTP data, from fiscal years 2009 through 2013, chapter 11 quarterly fees accounted for about $692 million, or about 57 percent of total fees deposited in the USTSF. In comparison, bankruptcy filing and conversion fees accounted for about $515 million, or about 42 percent of total USTSF fees deposited. During this time period, the majority of the USTP’s obligations were related to personnel costs. According to USTP data, in fiscal year 2013, personnel pay and benefits accounted for 74 percent of the USTP’s obligations, and rental payments for USTP office space accounted for 13 percent of obligations. According to the USTP, it allocates funding for personnel according to hours used by USTP staff performing bankruptcy enforcement and case administration activities, as well as resources directly related to the performance of these activities. Trends in Collections, Obligations, and Unobligated Balances USTSF collections and obligations from fiscal years 2009 through 2013 were relatively stable. Specifically, collections totals ranged from $217 million to about $223 million. During the same time, obligations ranged from about $214 million to about $226 million. The smallest collection and obligation totals were both in fiscal year 2013. The end-of-year unobligated balances from fiscal years 2009 through 2013 were also relatively stable, ranging from about $500,000 to about $8.6 million. According to USTP officials, the USTP uses the unobligated balance to meet its obligations to fund the program’s continuing operations. In addition to the contact named above, Dawn Locke (Assistant Director), Valerie P. Kasindi and Jeremy P. Manion (Analysts-in-Charge), Thomas Beall, Dean D. Carpenter, Wendy Dye, Cynthia Grant, Eric Hauswirth, Felicia Lopez, Alicia Loucks, Cory A. Mazer, Leah Q. Nash, Jessica S. Orr, Amanda J. Postiglione, and Janet Temko-Blinder made key contributions to this report.","DOJ is composed of approximately 40 components that carry out its activities and functions. The majority of DOJ’s budget authority is provided through annual appropriations, but, in some cases, DOJ has the ability to fund its programs by using money it collects through alternative sources, such as fines, fees, and penalties. The authority to use these sources may come from either permanent statutory authority or may be contained within an annual appropriations act. GAO was requested to examine DOJ’s alternative sources of funds. Specifically, this report addresses (1) how much of DOJ’s total budgetary resources come from major alternative sources of funding and the key statutory characteristics that provide agency flexibility regarding these sources, and (2) any opportunities that may exist for DOJ to better manage unobligated balances for selected major alternative sources of funding. GAO reviewed DOJ budget documents and relevant laws, and interviewed DOJ officials. Alternative sources of funding—collections by the Department of Justice (DOJ) from sources such as fines, fees, and penalties—made up about 15 percent of DOJ's total budgetary resources in fiscal year 2013. Specifically, DOJ collected about $4.3 billion from seven major alternative sources of funding—including the Assets Forfeiture Fund, the Crime Victims Fund (CVF), and noncriminal fingerprint checks fees, among others—which were available to DOJ. Agency flexibility regarding the use of the seven funding sources varied with laws specifying funding purposes, amounts, and availability by, for instance, limiting obligations from a source or limiting the period in which funds may be obligated. DOJ can improve management of two alternative sources of funding. Specifically: The Federal Bureau of Investigation's (FBI) Criminal Justice Information Services (CJIS) Division collected $396 million in fees for providing non-criminal justice fingerprint checks during fiscal year 2013. The fee is made up of a cost recovery and automation portion but the breakout between the two portions of the fee is not explicitly communicated to stakeholders. As a result, stakeholders do not have complete information for providing meaningful feedback. Additionally, CJIS sets fees, in part, based on projected volume of transactions. Actual volumes have exceeded projected volumes, resulting in CJIS bringing in more than anticipated in automation fees and contributing to an unobligated balance of $284 million at the end of fiscal year 2013. CJIS officials stated that they are aware of growing unobligated balances but have not evaluated what an appropriate amount should be. As a result, CJIS does not know if it is carrying over a suitable amount to meet future needs. In addition, unobligated balances in the CVF grew to nearly $9 billion by the end of fiscal year 2013. Statutory provisions annually limit DOJ's ability to obligate collections in the fund. For example, during fiscal year 2013, DOJ received about $1.5 billion in deposits to the fund, from sources such as criminal fines, and had statutory authority to obligate $730 million from the fund for crime victim assistance programs. Consistent with scorekeeping guidelines used during the congressional budget process, DOJ reported funds not available for obligation as a credit or offset to its annual discretionary budget authority. From fiscal years 2009 through 2013, DOJ reported $32 billion in offsets provided primarily by the CVF. As a result, DOJ's reported net discretionary budgetary authority decreased about 36 percent from 2009 to 2013, while DOJ's actual total discretionary budget authority remained relatively constant during these years. GAO recommends that DOJ develop a policy to analyze unobligated carryover balances of the Three Percent Fund. GAO also recommends that the FBI publish cost recovery and automation portions of fingerprint checks fees and develop a policy to analyze and determine an appropriate range for unobligated balances from automation fees. DOJ generally concurred with our recommendations, but noted concerns with developing revenue estimates for the Three Percent Fund and establishing a range of carryover balances for FBI fingerprint check fees."
"Federal excess and underutilized property is an ongoing challenge facing the government due in part to unreliable data. In June 2012, we found that the FRPC did not ensure that key data elements—including buildings’ utilization, condition, annual operating costs, mission dependency, and value—were defined and reported consistently and accurately. For example, the FRPP data did not accurately describe the properties at 23 of the 26 locations we visited, often overstating the condition and annual operating costs of buildings. The types of inconsistencies and inaccuracies we identified in these five key data elements suggest that the FRPP database is not a useful decision-making tool for managing federal real property. Our review focused on five civilian federal real property-holding agencies—GSA and the departments of Energy (DOE), the Interior (Interior), Veterans Affairs (VA), and Agriculture (USDA). We reviewed key agency-reported FRPP data elements including utilization, condition index, annual operating costs, and value, and we found inconsistencies and inaccuracies for each of these data elements. For example, several buildings that received high scores for condition were actually in poor condition, with problems including: asbestos, mold, health concerns, radioactivity, and flooding (see fig. 1). In addition to the various problems we found and documented with real property data, we have also found that the federal government continues to face other challenges when managing excess and underutilized properties. Such challenges include (1) the high cost of property disposal, (2) legal requirements prior to disposal such as those related to preserving historical properties and the environment, (3) stakeholder resistance to property disposal or reuse plans, and (4) remote property locations that make selling or disposal difficult. Given the complexities of issues related to excess and underutilized federal real property management, unsuccessful implementation of cost savings efforts across administrations, and the issues that remain with data reporting, we concluded that a national strategy could provide a clear path forward to help federal agencies manage excess and underutilized property in the long term. A national strategy can guide federal agencies and other stakeholders to systematically identify risks, resources needed to address those risks, and investment priorities when managing federal portfolios. Without a national strategy, the federal government may be ill-equipped to sustain efforts to better manage excess and underutilized property. In our June 2012 report, we recommended that OMB, in consultation with the FRPC, develop a national strategy for managing federal excess and underutilized real property. OMB did not directly state whether it agreed or disagreed with our recommendation. Up to now, no comprehensive national strategy has been issued. We view such a strategy as a key step needed to improve the federal government’s management of its real property portfolio. Additionally, FRPP is not yet a useful tool for describing the nature, use, and extent of excess and underutilized federal real property. We concluded in June 2012 that FRPP data must be consistent and reliable to help decision makers overcome these long-standing problems. Accordingly, in the same report, we recommended that GSA and FRPC take action to improve the FRPP. GSA stated that they intend to improve the agency’s management of FRPP data by: making enhancements to clearly define data collection requirements, performing data quality tests and assessments to ensure data developing new performance measures to support government-wide goals, and improving collaboration with agencies. GSA developed an action plan for implementing GAO’s recommendations and was scheduled to complete these changes by June 2013. We are in the process of determining whether these actions improve FRPP consistency and reliability. We plan to report our results as part of our 2015 high risk update. The federal government manages a wide variety of structures that represent over half of the federal government’s real property assets, including roads and parking structures, utility systems, monuments, and radio towers. In January 2014, we found that incorrect and inconsistent data on structures limit the value of the government-wide FRPP data the government collects. First, at the most basic level, some of the data agencies submit on their structures are incorrect, undermining agencies’ ability to manage their structures and the reliability of the data in FRPP. Second, even if agencies effectively apply the OMB guidance, the government-wide data will continue to face reliability problems because of the flexibility built into FRPP guidance on how agencies track key elements, such as defining and counting structures. For example, agencies we reviewed—including the Department of Transportation (DOT), DOE, VA, USDA, and Interior—defined structures differently leading to inconsistencies in what assets are included in the FRPP. Figure 2 provides examples of some facilities we visited that were classified as structures, even though they were similar to buildings (having features such as walls, roofs, doors, windows, and air- conditioning systems in some cases). We concluded that agencies must improve their data quality in order to document performance and support decision making. Additionally, the agencies we reviewed submitted incorrect information for key data elements for structures, such as replacement value, annual operating costs, and condition. GSA officials who manage the FRPP said that FRPC chose to provide flexibility in the reporting guidance for data on structures to account for the wide diversity in federal structures, but it also aggregates the data as if they were comparable. We found that, even if this data were useful, FRPC reports very little information on structures. Officials at GSA told us that there is low interest in and demand for this information, creating few incentives to improve data reliability. We recommended that OMB, in coordination with the FRPC, develop guidance to improve agencies’ internal controls to produce consistent, accurate and reliable information on their structures. We also recommended that GSA, in coordination with the FRPC, clarify the definition of structures and assess the feasibility of limiting the data collected on structures submitted to the FRPP. OMB and GSA agreed with the recommendations, and GSA provided an action plan in December 2013 to implement them, but no timeframe was provided for when the proposed actions would be completed. In a 2014 report, we found that civilian agencies followed most leading practices in managing their facility maintenance and repair backlogs, except for transparent reporting about the funding amounts agencies are spending to maintain their assets and manage their backlogs. However, the deferred maintenance and repair of federal real property contributes to deteriorating assets in the federal inventory, and we found that the eventual need to address deferred maintenance and repair could significantly affect future budget resources. The five federal agencies we reviewed for our 2014 report— GSA, DOE, VA, Interior, and the Department of Homeland Security (DHS) — reported fiscal year 2012 deferred maintenance and repair backlog estimates that ranged from nearly $1 billion to $20 billion. However, agencies do not share a common definition of deferred maintenance, resulting in dissimilar backlog estimates. In addition, financial reporting requirements as well as FRPP reporting guidance do not require a specific process for determining deferred maintenance and repair backlogs, and agencies can use their existing processes to do so. For example, Interior excludes, while DHS includes, costs for some assets scheduled for disposal. As a result, when agencies report information in their financial reports and to FRPP, data include dissimilar backlog estimates and makes estimates across agencies not comparable. As such, an opportunity exists to better conform to leading practices and increase transparency. We recommended that OMB, in collaboration with agencies, collect and report information on agencies’ costs for annual maintenance and repair performed and funding spent to manage their existing backlogs. OMB agreed with our recommendation, and along with FRPC, has taken actions to improve management of deferred maintenance, including working to refine FRPP data and develop performance measures that reflect current federal real-property management priorities, but OMB has not yet fully implemented our recommendation. Thus, as OMB and FRPC agencies work to improve FRPP data and develop new performance metrics, the opportunity exists to revise requirements for agencies to collect and report costs of annual maintenance and repair and to address deferred maintenance and repair backlogs as we recommended earlier this year. In June 2010, the President issued a memorandum directing federal agencies to achieve $3 billion in real property cost savings by the end of fiscal year 2012 through a number of methods, including disposal of excess property, energy efficiency improvements, and other space consolidation efforts. Agencies reported real property cost savings of $3.8 billion across the OMB categories of disposal, space management, sustainability, and innovation in response to the June 2010 presidential memorandum. Space management savings, defined by OMB as those savings resulting from, among other things, consolidations or the elimination of lease arrangements that were not cost effective, accounted for the largest portion of savings reported by all agencies. In October 2013, we found that space management savings accounted for about 70 percent of the savings reported by the six agencies we reviewed— GSA, USDA, DOE, DHS, the Department of Justice (DOJ), and the Department of State (State). The requirements of the memorandum, as well as agencies’ individual savings targets and the time frame for reporting savings, led the selected agencies to primarily report savings from activities that were planned or under way at the time the memorandum was issued. GAO’s October 2013 review of the six selected agencies found several problems that affected the reliability and transparency of the cost savings data that the government reported in response to the June 2010 memorandum. For example, OMB did not require agencies to provide detailed documentation of their reported savings or include specific information about agencies’ reported savings on Performance.gov, limiting transparency. Furthermore the memorandum and subsequent guidance issued by OMB were not clear on the types of savings that could be reported, particularly because the term “cost savings” was not clearly defined. For instance, officials from several agencies we reviewed said the guidance was unclear about whether savings from cost avoidance measures could be reported. In addition some agencies made different assumptions in reporting disposal savings. Some agencies did not deduct costs associated with disposals, and some reported savings outside the time frame of the memorandum. For example, two agencies reported one year of avoided operations and maintenance savings for the year in which the disposal occurred, while three agencies reported up to 3 years of savings depending on when disposals occurred during the 3-year period. Agency officials stated that the memorandum broadened their understanding of real property cost-savings opportunities. However, we concluded that establishing clearer standards for identifying and reporting savings would improve the reliability and transparency of the reporting of cost savings and help decision-makers better understand the potential savings of future initiatives to improve federal real-property management. As such, we recommended that OMB establish clear and specific standards to help ensure reliability and transparency in the reporting of future real-property cost savings. OMB generally agreed with the recommendation. We are in the process of determining the extent to which OMB has implemented the recommendation and plan to report our final results as part of our 2015 high risk update. Sustained progress is needed to address the conditions and persistent challenges that make the area of federal real property management high risk. Multiple administrations have committed to a more strategic approach toward managing real property. However, problems with data reliability remain an underlying challenge for agencies to properly manage the multiple areas of real property reform. We will continue to monitor these agencies’ efforts to implement our recommendations, which we believe are critical to addressing the challenges that have led us to keep federal real property management on our High Risk List. Chairman Mica, Ranking Member Connolly, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to answer any questions that you may have at this time. For further information regarding this testimony, please contact David Wise at (202) 512-2834 or wised@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony are Keith Cunningham (Assistant Director), David Sausville (Assistant Director), Raymond Griffith, Geoffrey Hamilton, Amy Higgins, Hannah Laufe, and Sara Ann Moessbauer.","The federal real property portfolio, comprising approximately 900,000 buildings and structures and worth billions of dollars, presents several key management challenges. GAO has designated federal real property management as a high risk issue since 2003 due to long-standing challenges including unreliable data on this property, excess and underutilized property, over-reliance on leasing, and challenges with security. Since then, the federal government has given high-level attention to reforming real property management and has made some progress. It established the FRPC, chaired by OMB, in 2004. The FRPC created the FRPP, which is intended to be a comprehensive database developed for describing the nature, use, and extent of all real property under the custody and control of executive branch agencies. The FRPP is managed by GSA and began collecting data in 2005. GAO's recent work has found, however, that data problems related to federal real property have continued. This statement discusses data guidance and reliability issues GAO has found regarding federal civilian agencies' data on: (1) excess and underutilized property, (2) structures, (3) maintenance backlogs, and (4) cost saving estimates. It is based on previous GAO reports on federal real property issued from June 2012 through January 2014 and some updates on the status of recommendations made in those reports. To obtain these updates, GAO monitored agency actions taken and performed follow-up with agency officials. GAO found in 2012 that government-wide real property data were not sufficiently reliable to support sound management and decision making about excess and underutilized property. The Federal Real Property Council (FRPC) had not ensured that key data elements of the Federal Real Property Profile (FRPP) were defined and reported consistently and accurately. For example, FRPP data did not accurately describe the properties at 23 of the 26 locations GAO visited, often overstating the condition and annual operating costs of buildings. GAO recommended that the General Services Administration (GSA), in consultation with FRPC, develop a plan to improve the FRPP. Consequently, GSA developed an action plan and was scheduled to complete these changes by June 2013. GAO is determining whether these actions improve FRPP consistency and reliability and plans to report the results as part of GAO's 2015 high risk update. In 2014, GAO found that incorrect and inconsistent data on federal structures such as roads, bridges, railroads, and utility systems, limited the value of the government-wide FRPP data. For example, agencies GAO reviewed defined structures differently leading to inconsistencies. GAO recommended that GSA, in coordination with FRPC, clarify the definition of structures and assess the feasibility of limiting the data on structures submitted to the FRPP. GSA provided an action plan in December 2013 to implement GAO's recommendations, but no timeframe was provided for when the proposed actions would be completed. In a 2014 report, GAO found that civilian agencies followed most leading practices in managing their facility maintenance and repair backlogs, except for transparent reporting about the funding amounts agencies are spending to maintain their assets and manage their backlogs. Different agency financial reporting requirements as well as FRPP reporting guidance did not require a specific process for determining deferred maintenance and repair backlogs, and agencies could use their existing processes. Thus, GAO recommended that OMB, in collaboration with agencies, collect and report information on agencies' costs for annual maintenance and repair performed and funding spent to manage their existing backlogs. OMB and FRPC agencies have taken actions to improve management of deferred maintenance, including working to refine FRPP data, but have not yet fully implemented GAO's recommendation. In a 2013 review of selected agencies' reporting of real property cost savings data, GAO identified several challenges that reduced the reliability and transparency of the data the government reported. For example, OMB did not require agencies to provide detailed documentation of their reported savings or include specific information about agencies' reported savings on Performance.gov, limiting transparency. Furthermore, guidance issued by OMB was not clear on the types of savings that could be reported, particularly because the term ""cost savings"" was not clearly defined. GAO recommended that OMB establish clear and specific standards to help ensure reliability and transparency in the reporting of future real-property cost savings. OMB generally agreed with the recommendation. GAO is determining the extent to which OMB has implemented it and GAO plans to report the results as part of GAO's 2015 high risk update."
"The Navy procured 18 Ohio (SSBN-726) class nuclear-powered ballistic missile submarines (SSBNs) between FY1974 and FY1991 to serve as part of the U.S. strategic nuclear deterrent force. They are commonly called Trident submarines because they carry Trident submarine-launched ballistic missiles (SLBMs). The first Trident entered service in 1981, the 18 th in 1997. The first 8 (SSBNs 726 through 733) were originally armed with Trident I (C4) SLBMs; the final 10 (SSBNs 734 through 743) were armed with larger and more powerful Trident II (D5) SLBMs. The boats were originally designed for a 30-year life but were later certified for a 42-year life, composed of 20 years of operation, a two-year mid-life nuclear refueling overhaul, and then another 20 years of operation. The Clinton Administration's 1994 Nuclear Posture Review (NPR) recommended a strategic nuclear force for the START II strategic nuclear arms reduction treaty that included 14 Tridents (all armed with D5 missiles) rather than 18. This recommendation prompted interest in Congress and elsewhere in the idea of converting the first 4 Trident SSBNs (SSBNs 726 through 729) into non-strategic submarines called SSGNs, so as to make good use of the 20 years of potential operational life remaining in these four boats and bolster the U.S. attack submarine (SSN) fleet, which has been significantly reduced in recent years. The Bush Administration's 2002 NPR retained the idea of reducing the Trident SSBN force to 14 boats. Some observers supported the SSGN conversion concept while a few others questioned it. The Navy in the late 1990s generally supported the concept in principle but also expressed concern over its ability to finance all four conversions while also funding other priorities. Congress, as part of its action on the proposed FY1999 defense budget, directed the Secretary of Defense to report on the issue to the congressional defense committees by March 1, 1999. The report was delivered to Congress in classified and unclassified form in June 1999. The Bush Administration highlighted the program as an example of defense transformation. The Bush administration, in its amended FY2002 defense budget submitted to Congress in June 2001, requested funding to begin the refueling and conversion of SSBNs 727 and 729, and additional funding to begin the inactivation and dismantlement of SSBNs 726 and 728. Since the Bush administration, prior to submitting this budget, had highlighted the Trident SSGN concept as an example of defense transformation, it came as somewhat of a surprise, particularly to supporters of the SSGN concept, that the Bush Administration requested funding to convert only two of the four Tridents. Navy officials said the decision was driven in part by Navy budget constraints, and that the deadline for committing to the refueling and conversion of SSBNs 726 and 728 on a timely basis had passed some time between late 2000 and June 2001. This also came as a surprise to some observers, since the Navy during the intervening months had not done much to publicize the impending deadline. The Navy later explained, however, that refueling and converting SSBNs 726 and 728 would still be possible if funds were provided in FY2002, though the schedule for planning and carrying out the operation would now be less than optimal. Congress, in marking up the FY2002 budget, increased funding for the program to the level the Navy said was needed to support a four-boat conversion program. The Bush Administration subsequently pursued the program as a four-boat effort. The Tridents as converted can carry up to 154 Tomahawk cruise missiles (or other non-strategic land attack missiles ) and 66 Navy SEAL special operations forces (SOF) personnel. Each boat retains its 24 large-diameter SLBM launch tubes but the boats have been modified as follows: SLBM tubes 1 and 2 were altered to serve as lockout chambers for the SOF personnel. Each chamber is equipped to connect to an Advanced SEAL Delivery System (ASDS) or Dry Deck Shelter (DDS). Other spaces were converted to berth and support 66 SOF personnel. Tubes 3 through 24 were modified to carry 7 Tomahawks each, for a total of 154 Tomahawks. Alternatively, tubes 3 through 10 can be used to carry additional SOF equipment and supplies; leaving tubes 11 through 24 to carry 98 missiles. The Trident SLBM fire control systems were replaced with tactical missile fire control systems, and certain other systems aboard the boats were modernized. In addition to these changes, each boat underwent a mid-life engineering (nuclear) refueling overhaul (ERO). Without EROs, the boats would have exhausted their nuclear fuel cores and been inactivated in the FY2003-FY2005 time frame. Each SSGN is to deploy for a period of more than a year, during which time it is to be operated by dual (Blue and Gold) crews rotating on and off the ship every three or four months. The aim is to have two of the four SSGNs continuously forward deployed until the ships are decommissioned in the late 2020s. As of September 30, 2007, SSBNs 726 and 727 were homeported in Puget Sound at Bangor, WA, while SSBNs 728 and 729 were homeported at Kings Bay, GA. The report of the 2001 Quadrennial Defense Review, submitted to Congress in September 2001, directed the Secretary of the Navy to explore options for homeporting SSGNs in the Western Pacific. SSBNs 726 and 727, though homeported at Bangor, are operated out of the U.S. territory of Guam in the Western Pacific. The SSGNs are to operate as covert platforms for conducting strike (i.e., land attack) and SOF-support missions. In the covert strike role, the boats can fulfill a substantial portion of the in-theater Tomahawk missile requirements that are established by regional U.S. military commanders, and thereby permit forward-deployed multimission Navy surface combatants and SSNs to concentrate on other missions. In their SOF-support role, the SSGNs can be viewed as functional replacements for the James K. Polk (SSN-645) and the Kamehameha (SSBN-642)—two older-generation SSBNs that were converted into SSNs specifically for supporting larger numbers of SOF personnel. The Polk was retired in 1999 at age 33; the Kamehameha was retired in 2002 at age 36. The Bush Administration and other supporters of the Trident SSGN program highlighted the program as an example of defense transformation, citing the conversion of a strategic-nuclear-forces platform into a non-strategic platform, the large number of cruise missiles that an SSGN will carry (which is several times the number that can be carried by a standard Navy attack submarine), and the large payload volume of the boats for carrying future advanced payloads. Others observers demurred, arguing that Navy has converted older SSBNs into SOF-support submarines in the past, that the larger number of cruise missiles that the SSGNs carry is more of a quantitative difference than a qualitative one, and that funding the Trident SSGN program may actually have slowed the transformation of the Navy's submarine force by reducing the amount of funding available for research and development efforts supporting more radical and transformational changes to the Virginia-class attack submarine design. The submarine community intends to maximize the transformational value of the SSGNs by using them as at-sea test beds for new ideas, such as using submarines to deploy large-diameter, highly capable unmanned underwater vehicles (UUVs). Even if one judges the program not transformational, one might still judge it cost effective in terms of the capabilities it provides and in realizing a full, 42-year return on the original procurement cost of the boats. As shown in Table 1 , the Navy estimates the total cost for refueling and converting four Tridents (including both research and development as well as procurement costs) at about $4.0 billion, or about $1 billion per boat. This figure represents a substantial increase over earlier estimates for a four-boat program of about $2.4 billion in 1999-2000, and $3.3 billion to $3.5 billion in 2001-2002. Refueling and converting four Tridents avoids a near-term expenditure of about $440 million to inactivate and dismantle them. The estimated net near-term additional cost to the budget to convert the 4 boats rather than inactivate and dismantle them is thus $3.56 billion ($4.0 billion less $440 million), or about $890 million per boat. DOD estimated in 1999 that the operating and support (O&S) cost for two SSGNs over 20 years would be $1,645.3 million in constant FY1998 dollars, which equates to $1,777.9 million in constant FY2005 dollars, or an average of about $44.4 million per boat per year in constant FY2005 dollars. Using this figure, the total 20-year life-cycle cost for four Trident SSGNs (including research and development costs, annual operation and support costs, and eventual inactivation and dismantlement costs) would be roughly $7.6 billion in constant FY2005 dollars. All four Trident conversions have been completed, and Initial Operational Capability (IOC) for the program was declared on November 1, 2007. SSBN-726, the first ship to be converted, reportedly began its first operational deployment as an SSGN in October 2007. The refuelings and conversions were performed by the Puget Sound Naval Shipyard (PSNSY) at Bremerton, WA SSBNs 726 and 727) and the Norfolk Naval Shipyard (NNSY) at Norfolk, VA (SSBNs 728 and 729). General Dynamics' Electric Boat Division (GD/EB) of Groton, CT, and Quonset Point, RI, the designer and builder of all 18 Tridents, is the prime contractor for the program. GD/EB is the conversion execution integrator for all four boats and is managing the completion of conversion construction activities. On May 13, 2002, the Administration announced that it had reached an agreement with Russia on a new strategic nuclear arms treaty that would require each side to reduce down to 1,700 to 2,200 strategic nuclear warheads by 2012. The agreement appears to resolve, from the U.S. perspective at least, a potential issue regarding the counting of ""phantom"" strategic nuclear warheads on converted Trident SSGNs. Potential oversight questions for Congress include the following: Why did the estimated cost of a four-boat conversion program increase by more than 60% since 1999-2000? Is the Navy adequately funding programs for unmanned underwater vehicles (UUVs) and other advanced payloads so as to take full advantage of the SSGNs' large payload capacity? If a decision is made to reduce the Trident SSBN force from 14 boats to 12, what would be the potential costs and merits of expanding the SSGN conversion program to include two additional Trident boats? Since the Navy's plan for maintaining a fleet in coming years of 313 ships includes 4 SSGNs, why does the Navy's 30-year shipbuilding include no replacements for the 4 SSGNs, resulting in the disappearance of SSGNs from the fleet by 2028? How would a continuing shortage of Advanced SEAL Delivery Systems (ASDSs) affect the operational utility of the SSGNs? The FY2009 defense appropriations act (Division C of H.R. 2638 / P.L. 110-329 of September 30, 2008) approved the Navy's FY2009 request for $3 million in Other Procurement, Navy (OPN) funding for the SSGN program.","The FY2006 budget completed the funding required in the Shipbuilding and Conversion, Navy (SCN) account for the Navy's program to refuel and convert four Trident ballistic missile submarines (SSBNs) into cruise-missile-carrying and special operations forces (SOF) support submarines (SSGNs). Initial Operational Capability (IOC) for the program was declared on November 1, 2007. The total estimated cost of the program is about $4.0 billion. This report will be updated as events warrant."
"In fiscal year 1993, GAO made over 1,600 recommendations. This report includes summaries highlighting the impact of GAO’s work and information on the status of all GAO recommendations that have not been fully implemented. This information should help congressional and agency leaders prepare for upcoming appropriations and oversight activities and stimulate further actions to achieve the desired improvements in government operations. Several changes have been made to this year’s report. The printed volume summarizes the impact of GAO’s work and highlights the key open recommendations. This volume also includes a set of computer diskettes with details on all open recommendations. The diskettes have several menu options to help users find information easily. For example, a user may search for an open recommendation by using product numbers, titles, dates, names of federal entities, congressional committees, or any other word or phrase that may appear in the report. Instructions for operating the electronic edition are at the end of this publication. The name and telephone number of the GAO manager to contact for information or assistance about a product is included on the diskettes. Information or questions not related to a specific product or recommendation should be referred to GAO’s Office of Congressional Relations on 202/512-4400. Copies of complete GAO printed products may be ordered by calling 202/512-6000. Please direct comments, questions, or suggestions for improving this report to Lawson “Rick” Gist, Assistant Director, Office of Policy, on 202/512-4478. Given the ongoing reductions in U.S. defense funding, a new relationship is evolving between the government and the defense industry. Our work focused on the major issues related to this changing relationship. We addressed questions such as the following: (1) Is the defense industrial base being restructured to best serve U.S. security interests? (2) Is defense technology being effectively maintained and protected? (3) Is the Department of Defense (DOD) reforming its acquisition process to address long-standing problems? (4) Do DOD contracting policies and practices ensure that public funds are spent properly? Increased emphasis is being placed on ensuring that as defense downsizing takes place, there is an orderly, efficient, and effective restructuring of the defense industrial base. We are examining key industrial base activities, as well as the effectiveness of plans to spend $20 billion over the next 5 years, on defense conversion. We are also examining DOD policies and practices to ensure that as efforts to enhance U.S. competitiveness are promoted, critical defense technologies are adequately protected. DOD and the Congress continue to pursue proposals to reform the defense acquisition system. We increased our efforts to evaluate these proposals to ensure that they achieve the benefits intended at reasonable costs. We also continued our review of DOD contracting practices to ensure that they adequately protect the taxpayer against fraud, waste, and abuse. Our reports and testimonies highlighted areas where DOD and defense contractor controls were not adequate to protect against improper use of government funds. For example, our work reviewing contractor overhead charges found examples of defense contractors’ charging the taxpayers for costs that were not allowable under federal regulations. Our audit work related to contract overpricing also found that a small percentage of defense contractors were responsible for most contract overpricing. In addition, we made several recommendations that, if effectively implemented, could save the taxpayers millions of dollars. For example, in our report on DOD operational test and evaluation, we pointed out that substantial savings were available by consolidating existing testing facilities, and we recommended actions to achieve this objective. The Federal Acquisition Regulation cost principles require defense contractors to identify and exclude unallowable costs from their overhead submissions. At all six contractors we reviewed, contractors did not exclude all unallowable costs. For example, in addition to identifying almost $1 million in costs questioned by the Defense Contract Audit Agency (DCAA) at these six contractors, we identified about $2 million more in overhead costs that were either expressly unallowable or questionable. We concluded that the federal cost principles governing allowability for entertainment, employee morale and welfare, and business meetings costs lacked sufficient clarity to ensure consistent and appropriate application. We also concluded that limited transaction testing by DCAA may have also contributed to the nearly $2 million undetected unallowable or questionable costs. We recommended that, to address these problems, DOD clarify the Federal Acquisition Regulation in some cases and, in other cases, evaluate the cost principles to determine whether additional guidance was needed. We further recommended that DCAA evaluate the extent to which its field offices needed to spend more time in transaction testing. (GAO/NSIAD-93-79) With the defense industry downsizing, defense companies can make significant cost reductions by incorporating modern technologies and innovative management techniques. Of the 24 defense companies we surveyed, 3 had instituted more-efficient techniques and practices. Savings to DOD from such cost reductions can be significant. One of the defense companies reported reducing work-in-process costs by $80 million and passing the savings on to the government. Competitive market forces may not be sufficient to motivate many defense companies to significantly lower costs, however. Significant progress in this area will require DOD efforts to stimulate contractor actions. We recommended that DOD, as part of its efforts to reform the defense acquisition system, identify and eliminate the factors that result in defense contractors not incorporating technologies and management techniques to reduce costs. (GAO/NSIAD-93-125) Acquisition Management: Implementation of the Defense Acquisition Workforce Improvement Act (GAO/NSIAD-93-129) Acquisition Reform: Contractors Can Use Technologies and Management Techniques to Reduce Costs (GAO/NSIAD-93-125) Air Force Procurement: Current Plans May Provide More Ground-Attack Capability Than Needed (GAO/NSIAD-92-137) AV-8B Program: Aircraft Sales to Foreign Government to Fund Radar Procurement (GAO/NSIAD-93-24) Contract Pricing: DCAA’s Audit Coverage Lowered by Lack of Subcontract Information (GAO/NSIAD-92-173) Contract Pricing: Economy and Efficiency Audits Can Help Reduce Overhead Costs (GAO/NSIAD-92-16) Contract Pricing: Unallowable Costs Charged to Defense Contracts (GAO/NSIAD-93-79) Defense Acquisition: U.S.-German Examinations of the MLRS Terminal Guidance Warhead Program (GAO/NSIAD-92-7) Defense Communications: Defense’s Program to Improve Telecommunications Management Is at Risk (GAO/IMTEC-93-15) Defense Contracting: Interim Report on Mentor-Protege Program for Small Disadvantaged Firms (GAO/NSIAD-92-135) Defense Industrial Base: An Overview of an Emerging Issue (GAO/NSIAD-93-68) DOD Contracting: Techniques to Ensure Timely Payments to Subcontractors (GAO/NSIAD-93-136) DOD Procurement: Cost-Per-Copy Service Can Reduce Copying Costs (GAO/NSIAD-90-276) Energy Management: Contract Audit Problems Create the Potential for Fraud, Waste, and Abuse (GAO/RCED-92-41) Energy Management: Systems Contracting Weaknesses Continue (GAO/RCED-93-143) Federal Research: Lessons Learned From SEMATECH (GAO/RCED-92-283) Federal Research: System for Reimbursing Universities’ Indirect Costs Should Be Reevaluated (GAO/RCED-92-203) High Performance Computing: Advanced Research Projects Agency Should Do More to Foster Program Goals (GAO/IMTEC-93-24) International Air and Trade Shows: DOD Increased Participation, but Its Policies Are Not Well-Defined (GAO/NSIAD-93-96) International Procurement: NATO Allies’ Implementation of Reciprocal Defense Agreements (GAO/NSIAD-92-126) Military Coproduction: U.S. Management of Programs Worldwide (GAO/NSIAD-89-117) Minority Contracting: DOD’s Reporting Does Not Address Legislative Goal (GAO/NSIAD-93-167) Multiple Award Schedule Purchases: Changes Are Needed to Improve Agencies’ Ordering Practices (GAO/NSIAD-92-123) Multiple Award Schedule Purchases: Improvements Needed Regarding Publicizing Agencies’ Orders (GAO/NSIAD-92-88) NASA Aeronautics: Impact of Technology Transfer Activities Is Uncertain (GAO/NSIAD-93-137) Nuclear Science: Consideration of Accelerator Production of Tritium Requires R&D (GAO/RCED-92-154) Operation Desert Shield/Storm: Impact of Defense Cooperation Account Funding on Future Maintenance Budgets (GAO/NSIAD-93-179) Procurement: DOD Efforts Relating to Nondevelopmental Items (GAO/NSIAD-89-51) Technology Transfer: Barriers Limit Royalty Sharing’s Effectiveness (GAO/RCED-93-6) Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers (GAO/RCED-92-30) Test and Evaluation: Little Progress in Consolidating DOD Major Test Range Capabilities (GAO/NSIAD-93-64) Test and Evaluation: Reducing Risks to Military Aircraft From Bird Collisions (GAO/NSIAD-89-127) University Research: Controlling Inappropriate Access to Federally Funded Research Results (GAO/RCED-92-104) U.S.-Israel Arrow/Aces Program: Cost, Technical, Proliferation, and Management Concerns (GAO/NSIAD-93-254) Weapons Codevelopment: U.S. National Issues in the MLRS Terminal Guidance Warhead Program (GAO/NSIAD-92-55) Significant challenges face the Department of Defense (DOD) and the National Aeronautics and Space Administration (NASA) in light of the end of the Cold War, pressing domestic problems, and the spiraling budget deficit. While DOD has recognized the need to re-engineer and streamline its operations, it continues to have difficulty in implementing effective and efficient programs. DOD needs to change existing management practices, procedures, and culture to overcome long-standing problems. In addition, as DOD closes and realigns military bases as part of its efforts to downsize and restructure its forces and reduce defense spending, it will face increased spending in other areas, such as in environmental cleanup at bases being closed or designated for closure and the destruction of chemical weapons. A key to managing these emerging, potentially high-cost areas will be in defining the overall costs, alternative management and technology strategies, and proactive steps to avoid similar problems. NASA also faces major restructuring of its programs and activities. The overcommitment of the agency’s likely budget has created funding uncertainty and the need for major restructuring in some of its largest programs. Our major efforts throughout the year focused primarily on matters associated with affordability issues. We reported that, agencywide, NASA’s major space missions over the last 15 years had required substantially more funding than initially estimated and emphasized NASA’s need for an independent cost-estimating capability. We also continued to devote a significant amount of attention to NASA’s attempts to reestablish control over its procurement activities. In this area, we reported on the agency’s efforts to revise its contract for the operation of the Jet Propulsion Laboratory and on the need for NASA to change its policies, procedures, and practices in providing equipment to its contractors. Key areas we focused on in fiscal year 1992 include reducing the defense infrastructure and excess inventory; identifying opportunities to save money and achieve management efficiencies through new processes; quantifying the unfunded liabilities facing DOD such as environmental cleanup; and improving NASA management in the areas of program affordability and contracting. DOD and NASA actions are required to implement the following key recommendations that would result in management improvements, operational efficiencies, and dollar savings. We recommended several actions to improve the implementation of future DOD processes for selecting bases for closure and realignment, including taking advantage of cross-service opportunities that could result in a more efficient realignment of support facilities and additional cost savings. (GAO/NSIAD-93-173) In continuing to monitor DOD’s progress in reducing its inventory, we made several recommendations to avoid unnecessary purchases of supplies and industrial plant equipment. (GAO/NSIAD-93-124 and GAO/NSIAD-93-8) We also recommended that, to improve DOD’s inventory management practices, DOD use a quick response, commercial purchasing process that could maintain a constant flow of inventory without maintaining large inventories. (GAO/NSIAD-93-112) We recommended pilot programs and projects to demonstrate the applicability of commercial practices in two areas—military industrial centers and food distribution. Such actions could improve management and reduce costs by eliminating unnecessary processes and functions. (GAO/NSIAD-93-110 and GAO/NSIAD-9-155) To improve DOD’s management of emerging high-cost issues, such as environmental cleanup, we recommended improving the operations of plants designed to destroy chemical munitions, upgrading of underground storage tanks to avoid costly cleanups, and obtaining better data on the amount of funds paid to DOD contractors for cleanup. (GAO/NSIAD-92-117, GAO/NSIAD-93-50, and GAO/NSIAD-93-77) Our principal concern in the NASA area has been the affordability of its total program. Clearly, the agency’s funding expectations were set too high and it needed to bring the content and the pace of its efforts more reasonably in line with its likely future years’ budgets. In doing so, NASA has to also identify opportunities to function more efficiently and to prepare more-realistic estimates of the likely cost of projects. Our work also helped identify such opportunities and focus NASA’s attention on the need for having an independent capability for developing more-realistic project cost estimates. (GAO/NSIAD-93-73, GAO/NSIAD-93-178, and GAO/NSIAD-93-191) On the basis of our series of eight classified reports on the U.S. strategic nuclear triad, we made five specific recommendations to DOD in our June 10, 1993, unclassified testimony to the Senate Governmental Affairs Committee. To date, DOD has not acted favorably or conclusively on four of those recommendations, as follows: (1) that procurement of the B-2 bomber be terminated with the completion of 15 aircraft, rather than at 20 as requested by the Air Force; (2) that additional operational testing of the B-1B bomber be done to verify essential improvements in reliability and electronic countermeasures and to remove remaining uncertainties concerning range performance; (3) that the cost-effectiveness of the Air Force’s proposed life-service extension of the Minuteman III intercontinental ballistic missile be the subject of additional, rigorous review; and (4) that the Navy continue flight testing for the D-5 submarine-launched ballistic missile at an annual rate sufficient to maintain an understanding of actual missile performance at a high level of confidence. (GAO/T-PEMD-93-5) The Department of Defense has made little progress in implementing the recommendations in our September 1992 report. Defense is at a turning point regarding CIM. The new leadership of the incoming administration is reassessing the overall strategy of the CIM initiative. It is unclear what this reassessment will encompass and when it will be completed. As one of the largest information management initiatives ever undertaken, CIM has great promise—not only for Defense but for other federal agencies and the nation as well. By improving business operations with less resources, Defense can improve its war-fighting capabilities while shifting scarce resources to other national needs. Implementing CIM, however, requires a major cultural change in managing information resources that Defense is finding difficult to implement. Therefore, we believe that it is critical for the Secretary of Defense to take an active role in implementing CIM. (GAO/IMTEC-92-77) Air Force Academy: Gender and Racial Disparities (GAO/NSIAD-93-244) Air Force Appropriations: Funding Practices at the Ballistic Missile Organization (GAO/NSIAD-93-47) Army Maintenance: Savings Possible by Stopping Unnecessary Depot Repairs (GAO/NSIAD-92-176) Biological Warfare: Role of Salk Institute in Army’s Research Program (GAO/NSIAD-92-33) Chemical and Biological Defense: U.S. Forces Are Not Adequately Equipped to Detect All Threats (GAO/NSIAD-93-2) Chemical Weapons Destruction: Issues Affecting Program Cost, Schedule, and Performance (GAO/NSIAD-93-50) Commercial Practices: DOD Could Save Millions by Reducing Maintenance and Repair Inventories (GAO/NSIAD-93-155) Defense Inventory: Applying Commercial Purchasing Practices Should Help Reduce Supply Costs (GAO/NSIAD-93-112) Defense Inventory: Defense Logistics Agency’s Materiel Returns Program (GAO/NSIAD-93-124) Defense Inventory: Depot Packing and Shipping Procedures (GAO/NSIAD-93-3) Defense Inventory: DOD Actions Needed to Ensure Benefits From Supply Depot Consolidation Efforts (GAO/NSIAD-92-136) Defense Inventory: Growth in Air Force and Navy Unrequired Aircraft Parts (GAO/NSIAD-90-100) Defense Inventory: Growth in Ship and Submarine Parts (GAO/NSIAD-90-111) Defense Inventory: More Accurate Reporting Categories Are Needed (GAO/NSIAD-93-31) Defense Transportation: Defense Logistics Agency’s Regional Freight Consolidation Centers (GAO/NSIAD-93-169) Defense Transportation: Ineffective Oversight Contributes to Freight Losses (GAO/NSIAD-92-96) DOD Food Inventory: Using Private Sector Practices Can Reduce Costs and Eliminate Problems (GAO/NSIAD-93-110) DOD Medical Inventory: Reductions Can Be Made Through the Use of Commercial Practices (GAO/NSIAD-92-58) DOD Special Access Programs: Administrative Due Process Not Provided When Access Is Denied or Revoked (GAO/NSIAD-93-162) Environmental Cleanup: Observations on Consistency of Reimbursements to DOD Contractors (GAO/NSIAD-93-77) Environmental Protection: Solving NASA’s Current Problems Requires Agencywide Emphasis (GAO/NSIAD-91-146) Environment, Safety, and Health: Environment and Workers Could Be Better Protected at Ohio Defense Plants (GAO/RCED-86-61) Financial Management: NASA’s Financial Reports Are Based on Unreliable Data (GAO/AFMD-93-3) Hazardous Materials: Upgrading of Underground Storage Tanks Can Be Improved to Avoid Costly Cleanups (GAO/NSIAD-92-117) Hazardous Waste: Management Problems Continue at Overseas Military Bases (GAO/NSIAD-91-231) Information Security: Disposition and Use of Classified Documents by Presidential Appointees (GAO/NSIAD-90-195) Management Review: Follow-Up on the Management Review of the Defense Logistics Agency (GAO/NSIAD-88-107) Military Bases: Analysis of DOD’s Recommendations and Selection Process for Closures and Realignments (GAO/NSIAD-93-173) NASA Aeronautics: Impact of Technology Transfer Activities Is Uncertain (GAO/NSIAD-93-137) NASA Procurement: Agencywide Action Needed to Improve Management of Contract Modifications (GAO/NSIAD-92-87) NASA Procurement: Proposed Changes to the Jet Propulsion Laboratory Contract (GAO/NSIAD-93-178) NASA Property: Improving Management of Government Equipment Provided to Contractors (GAO/NSIAD-93-191) National Aero-Space Plane: A Need for Program Direction and Funding Decisions (GAO/NSIAD-93-207) National Aero-Space Plane: Restructuring Future Research and Development Efforts (GAO/NSIAD-93-71) Navy Inventory: Better Controls Needed Over Planned Program Requirements (GAO/NSIAD-93-151) Nuclear Energy: Environmental Issues at DOE’s Nuclear Defense Facilities (GAO/RCED-86-192) Ozone-Depleting Chemicals: Increased Priority Needed If DOD Is to Eliminate Their Use (GAO/NSIAD-92-21) Personnel Security: Efforts by DOD and DOE to Eliminate Duplicative Background Investigations (GAO/RCED-93-23) Property Disposal: DOD Is Handling Large Amounts of Excess Property in Europe (GAO/NSIAD-93-195) Property Management: DOD Can Increase Savings by Reusing Industrial Plant Equipment (GAO/NSIAD-93-8) Security Clearances: Due Process for Denials and Revocations by Defense, Energy, and State (GAO/NSIAD-92-99) Space Programs: NASA’s Independent Cost Estimating Capability Needs Improvement (GAO/NSIAD-93-73) Space Project Testing: Uniform Policies and Added Controls Would Strengthen Testing Activities (GAO/NSIAD-91-248) Space Station: Improving NASA’s Planning for External Maintenance (GAO/NSIAD-92-271) Technology Development: Future Use of NASA’s Large Format Camera Is Uncertain (GAO/NSIAD-90-142) The U.S. Nuclear Triad: GAO’s Evaluation of the Strategic Modernization Program (GAO/T-PEMD-93-5) The collapse of the Soviet bloc has shifted national priorities from defense to economic concerns. Economic performance will establish America’s place in the world as it moves into the 21st century. America’s “competitiveness”—the nation’s ability to sustain a rising standard of living for its citizens in a complex world economy—will determine how successful this nation will be in the new global economy. International trade and finance policy will be important determinants of America’s success. Trade regimes, access to and development of foreign resources and markets, and competitiveness of U.S. goods and services in the integrated world marketplace are key to the long-term health of the nation’s economy. We have reviewed and reported on a number of these issues over the past year to help gauge the impact of events and the need for policy and management changes. Our information helped the Congress assess a large number of critical issues being considered, such as the North American Free Trade Agreement debate, progress on agricultural trade, implementation of the U.S.-Canada Free Trade Agreement, issues affecting investment in the petroleum sector, intellectual property rights, developments in U.S.-Chilean trade, prospects for East European energy, and the business environment in the United States, Japan, and Germany. In January 1992, we reported that federal export promotion programs lacked organizational and funding cohesiveness. We concluded that, as a result, the U.S. Government did not have reasonable assurances that its export promotion resources, which totaled $2.7 billion in fiscal year 1991, were being used most effectively to emphasize sectors, regions, and programs with the highest potential return. We recommended that, to correct this situation, the Secretary of Commerce, as chair of the 19-member interagency Trade Promotion Coordinating Committee, work with other member agencies and the Director of the Office of Management and Budget to (1) develop a governmentwide strategic plan for carrying out federal export promotion programs and (2) ensure that the budget requests for these programs were consistent with their relative strategic importance. (GAO/NSIAD-92-49) Our February 1992 report about the International Trade Commission (ITC) identified ambiguities in the agency’s governing statute. We found that these ambiguities had created disagreements between Chairs and Commissioners about who had ultimate responsibility for ITC’s administration and adversely affected its operations. We suggested that, to improve management, the Congress replace replacing the ITC’s current statutory administrative override authority with decisionmaking requirements like those found in other independent agencies. Also, we suggested that the Congress clarify the statutory provisions concerning budget responsibilities. (GAO/NSIAD-92-45) Our January 1992 report on Agricultural Trade Offices showed that the Department was not making the best use of its resources. We recommended that the Secretary of Agriculture take a variety of actions to clearly define the role of the Agricultural Trade Offices and evaluate their effectiveness. (GAO/NSIAD-92-65) In May 1993, we recommended that the Federal Reserve require each Federal Reserve Bank to begin charging foreign banks for the costs of examining their U.S. agencies, branches, and representative offices. If the Federal Reserve continues to believe that the assessment of examination charges under Foreign Bank Supervision Enhancement Act of 1991 creates a conflict with U.S. treaty and trade obligations, it should seek an amendment to the act. (GAO/GGD-93-35R) Customs Service: Trade Enforcement Activities Impaired by Management Problems (GAO/GGD-92-123) Export Controls: Issues In Removing Militarily Sensitive Items From the Munitions List (GAO/NSIAD-93-67) Export Promotion: Federal Efforts to Increase Exports of Renewable Energy Technologies (GAO/GGD-93-29) Export Promotion: Federal Programs Lack Organizational and Funding Cohesiveness (GAO/NSIAD-92-49) Export Promotion: Problems in the Small Business Administration’s Programs (GAO/GGD-92-77) Federal Research: Lessons Learned From SEMATECH (GAO/RCED-92-283) Foreign Direct Investment: Assessment of Commerce’s Annual Report and Data Improvement Efforts (GAO/NSIAD-92-107) International Trade: Agricultural Trade Offices’ Role in Promoting U.S. Exports Is Unclear (GAO/NSIAD-92-65) International Trade: Changes Needed to Improve Effectiveness of the Market Promotion Program (GAO/GGD-93-125) International Trade Commission: Administrative Authority Is Ambiguous (GAO/NSIAD-92-45) International Trade: Easing Foreign Visitors’ Arrivals at U.S. Airports (GAO/NSIAD-91-6) Loan Guarantees: Export Credit Guarantee Programs’ Costs are High (GAO/GGD-93-45) North American Free Trade Agreement: Assessment of Major Issues (GAO/GGD-93-137) Nuclear Nonproliferation: Better Controls Needed Over Weapons-Related Information and Technology (GAO/RCED-89-116) Nuclear Nonproliferation: Controls Over the Commercial Sale and Export of Tritium Can Be Improved (GAO/RCED-91-90) Nuclear Nonproliferation: DOE Needs Better Controls to Identify Contractors Having Foreign Interests (GAO/RCED-91-83) Technology Transfer: Barriers Limit Royalty Sharing’s Effectiveness (GAO/RCED-93-6) Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers (GAO/RCED-92-30) With the end of the Cold War, U.S. national security and foreign affairs policies and objectives have come under increased scrutiny in recognition of the changing world order and the corresponding need to reassess U.S. security interests—military, political, and economic. Federal budget constraints have further reinforced the need to reexamine foreign policy objectives and program priorities. Policy and program shifts are under way to (1) downsize U.S. military forces, (2) place greater emphasis on strengthening our economic security, (3) promote democracy around the world, (4) address worldwide arms control and proliferation concerns, and (5) restructure our foreign assistance programs. Much of our work in 1993 has concentrated on what changes are needed to redirect and better manage foreign affairs programs and priorities, as well as on providing increased oversight of program expenditures. Our comprehensive analysis of the Agency for International Development’s (AID) management of economic assistance resources and our recent testimony on the future direction of U.S. assistance have provided the new administration and the Congress with specific recommendations on what needs to be done to restructure U.S. aid. Our assessment of the proposed consolidation of Radio Free Europe/Radio Liberty and the Voice of America—provided to both administration decisionmakers and congressional legislators for their use in considering the consolidation proposal—showed that estimated cost savings may not be as high as anticipated and highlighted other constraints that need to be addressed in making any final decision. Our work on international counternarcotics programs has contributed to the current effort to reassess the U.S. government’s approach and strategy for dealing with the drug problem. We have also assessed how well the U.S. government has, either bilaterally or through multilateral organizations, addressed such critical issues as peacekeeping in Somalia and Cambodia and the implementation of sanctions in Serbia and Haiti. Our testimony on the U.N. peacekeeping operation in Cambodia disclosed significant difficulties in carrying out the operation and weaknesses in U.N. peacekeeping planning and support systems. More generally, our work on U.S. participation in U.N. organizations continued to focus on the need for improved management—a key U.S. government objective vis-a-vis the United Nations. Our examinations of various U.S. bilateral programs identified program management weaknesses and served as a basis for improved congressional oversight. Our review of the commercial foreign military sales program found serious problems that contributed to the program’s termination. Our testimony on Nunn-Lugar funding for arms control efforts in the former Soviet Union focused on slow funds disbursement and corresponding limited progress in achieving the legislation’s intent. Our work on the U.S.-Israeli Arrow antitactical ballistic missile program likewise pointed out problems with the U.S. government’s limited control over program-related U.S. technology and funding and provided specific recommendations to the Department of Defense (DOD) to strengthen program management. On the basis of our recommendation that DOD develop accurate baselines for the Arrow program’s cost, schedule, and technical performance and use them to assess alternatives, the Senate Appropriations Committee has directed DOD to conduct such a study and report the results to the Committee. In June 1993, we reported on the need for AID to address management problems to ensure that AID is adequately meeting its foreign economic assistance responsibilities. We made numerous recommendations dealing with specific problems and recommended that AID play a leadership role in developing a strategic direction for U.S. foreign economic assistance. We further recommended that the AID Administrator bring AID’s management systems into balance with the agency’s decentralized organizational structure and establish a “total work force” planning and management process. (GAO/NSIAD-93-106) We found that DOD did not have valid baseline information on the U.S.-Israel Arrow antitactical ballistic missile program necessary to assess its cost, schedule, and technical performance and to evaluate its cost-effectiveness relative to U.S. alternatives. We further found that the U.S. government had exercised only limited control over U.S. technology and funds in the program. We recommended that DOD develop accurate baselines and use them to assess the cost-effectiveness of U.S. alternatives to Arrow for meeting Israel’s ballistic missile defense needs. We further recommended that DOD ensure that no additional Arrow or related contracts were signed until a series of steps are taken to improve oversight. (GAO/NSIAD-93-254) In a series of reviews of the Department of State’s management of its overseas posts, we found that posts did not have sufficient management controls to ensure full compliance with applicable regulations and minimize their vulnerability to fraud, waste, and abuse. We recommended that posts adopt a more proactive approach in identifying opportunities for management improvement and cost reductions. (GAO/NSIAD-93-88 and GAO/NSIAD-93-190) In July 1992, we reported on the progress of the Voice of America’s (VOA) $1.2 billion program to modernize its broadcast facilities. We found that VOA’s facilities modernization program had been hampered by delays and changes in funding priorities. We recommended that the Director of the U.S. Information Agency require a fully documented cost-benefit analysis before approving further modernization project proposals. (GAO/NSIAD-92-150) We reviewed progress being made and problems being experienced by U.S. and Colombian agencies in implementing U.S. counternarcotics programs in Colombia. We found that the U.S. government lacked data needed to evaluate program effectiveness and that numerous obstacles and budgetary constraints had impeded program implementation. We recommended that the Director of the Office of National Drug Control Policy reevaluate U.S. counternarcotics programs in Colombia and throughout the Andean region. (GAO/NSIAD-93-158) Agency for International Development: The Minority Shipping Program Is Constrained by Program Requirements (GAO/NSIAD-92-304) AID Management: EEO Issues and Protected Group Underrepresentation Require Management Attention (GAO/NSIAD-93-13) AID Management: Strategic Management Can Help AID Face Current and Future Challenges (GAO/NSIAD-92-100) Aid to Kenya: Accountability for Economic and Military Assistance Can Be Improved (GAO/NSIAD-93-57) Aid to Nicaragua: U.S. Assistance Supports Economic and Social Development (GAO/NSIAD-92-203) Aid to Panama: Improving the Criminal Justice System (GAO/NSIAD-92-147) American Samoa: Inadequate Management and Oversight Contribute to Financial Problems (GAO/NSIAD-92-64) Arms Control: U.S. and International Efforts to Ban Biological Weapons (GAO/NSIAD-93-113) AV-8B Program: Aircraft Sales to Foreign Government to Fund Radar Procurement (GAO/NSIAD-93-24) Classified Information: Volume Could Be Reduced by Changing Retention Policy (GAO/NSIAD-93-127) Defense Acquisition: U.S.-German Examinations of the MLRS Terminal Guidance Warhead Program (GAO/NSIAD-92-7) Drug Control: Communications Network Funding and Requirements Uncertain (GAO/NSIAD-92-29) Drug Control: Inadequate Guidance Results in Duplicate Intelligence Production Efforts (GAO/NSIAD-92-153) Drug Control: Revised Drug Interdiction Approach Is Needed in Mexico (GAO/NSIAD-93-152) Drugs: International Efforts to Attack a Global Problem (GAO/NSIAD-93-165) Drug War: Drug Enforcement Administration Staffing and Reporting in Southeast Asia (GAO/NSIAD-93-82) EL Salvador: Efforts to Satisfy National Civilian Police Equipment Needs (GAO/NSIAD-93-100BR) Export Controls: Issues In Removing Militarily Sensitive Items From the Munitions List (GAO/NSIAD-93-67) Financial Management: Fiscal Year 1992 Audit of the Defense Cooperation Account (GAO/NSIAD-93-185) Financial Management: Inadequate Accounting and System Project Controls at AID (GAO/AFMD-93-19) Financial Management: Serious Deficiencies in State’s Financial Systems Require Sustained Attention (GAO/AFMD-93-9) Food Aid: Management Improvements Are Needed to Achieve Program Objectives (GAO/NSIAD-93-168) Foreign Assistance: Accuracy of AID Statistics on Dollars Flowing Back to the U.S. Economy Is Doubtful (GAO/NSIAD-93-196) Foreign Assistance: AID Can Improve Its Management of Overseas Contracting (GAO/NSIAD-91-31) Foreign Assistance: AID’s Private-Sector Assistance Program at a Crossroads (GAO/NSIAD-93-55) Foreign Assistance: AID Strategic Direction and Continued Management Improvements Needed (GAO/NSIAD-93-106) Foreign Assistance: Combating HIV/AIDs in Developing Countries (GAO/NSIAD-92-244) Foreign Assistance: Improvements Needed in AID’s Oversight of Grants and Cooperative Agreements (GAO/NSIAD-93-202) Foreign Assistance: Meeting the Training Needs of Police in New Democracies (GAO/NSIAD-93-109) Foreign Assistance: Promising Approach to Judicial Reform in Colombia (GAO/NSIAD-92-269) Foreign Assistance: Promoting Judicial Reform to Strengthen Democracies (GAO/NSIAD-93-149) Foreign Assistance: U.S. Efforts to Spur Panama’s Economy Through Cash Transfers (GAO/NSIAD-93-56) Foreign Disaster Assistance: AID Has Been Responsive but Improvements Can Be Made (GAO/NSIAD-93-21) Foreign Economic Assistance: Better Controls Needed Over Property Accountability and Contract Close Outs (GAO/NSIAD-90-67) Information Resources Management: Initial Steps Taken But More Improvements Needed in AID’s IRM Program (GAO/IMTEC-92-64) Internal Controls: AID Missions Overstate Effectiveness of Controls for Host Country Contracts (GAO/NSIAD-91-116) International Procurement: NATO Allies’ Implementation of Reciprocal Defense Agreements (GAO/NSIAD-92-126) Military Aid: Stronger Oversight Can Improve Accountability (GAO/NSIAD-92-41) Military Coproduction: U.S. Management of Programs Worldwide (GAO/NSIAD-89-117) Military Sales to Israel and Egypt: DOD Needs Stronger Controls Over U.S.-Financed Procurements (GAO/NSIAD-93-184) Multilateral Foreign Aid: U.S. Participation in the International Fund for Agricultural Development (GAO/NSIAD-93-176) Nuclear Nonproliferation: Better Controls Needed Over Weapons-Related Information and Technology (GAO/RCED-89-116) Nuclear Nonproliferation: Controls Over the Commercial Sale and Export of Tritium Can Be Improved (GAO/RCED-91-90) Nuclear Nonproliferation: DOE Needs Better Controls to Identify Contractors Having Foreign Interests (GAO/RCED-91-83) Nuclear Nonproliferation: Japan’s Shipment of Plutonium Raises Concerns About Reprocessing (GAO/RCED-93-154) Peace Corps: Long-Needed Improvements to Volunteers’ Health Care System (GAO/NSIAD-91-213) Radon Testing in Federal Buildings Needs Improvement and HUD’s Radon Policy Needs Strengthening (GAO/T-RCED-91-48) Security Assistance: Observations on Post-Cold War Program Changes (GAO/NSIAD-92-248) Security Assistance: Observations on the International Military Education and Training Program (GAO/NSIAD-90-215BR) State Department: Management Weaknesses at the U.S. Embassies in Panama, Barbados, and Grenada (GAO/NSIAD-93-190) State Department: Management Weaknesses at the U.S. Embassy in Mexico City, Mexico (GAO/NSIAD-93-88) State Department: Need to Ensure Recovery of Overseas Medical Expenses (GAO/NSIAD-92-277) The Drug War: Colombia Is Undertaking Antidrug Programs, but Impact Is Uncertain (GAO/NSIAD-93-158) UNESCO: Status of Improvements in Management Personnel, Financial, and Budgeting Practices (GAO/NSIAD-92-172) United Nations: U.S. Participation in Peacekeeping Operations (GAO/NSIAD-92-247) Voice of America: Management Actions Needed to Adjust to a Changing Environment (GAO/NSIAD-92-150) Weapons Codevelopment: U.S. National Issues in the MLRS Terminal Guidance Warhead Program (GAO/NSIAD-92-55) During fiscal year 1992, we continued to complete assignments involving operational issues pertaining to the Persian Gulf War. Although the war was of limited duration, it nonetheless highlighted several operational and support problems that required attention. We identified improvements needed in the areas of deployment transportation systems, medical readiness and training, and chemical and biological defense capabilities. We identified improvements needed in dealing with unanticipated hazards associated with U.S. weapons systems and munitions, such as depleted uranium and unexploded submunitions. We also identified lessons learned, applicable to the future, in the areas of airlift capabilities, joint training, and use of reserve personnel. Aside from Gulf War-related issues, our work during the past fiscal year identified improvements under way and still required to bring about better management and more effective use of computer simulation technology to enhance military training and to make improvements in other areas of training, such as the use of troop schools, and training involving National Guard combat units. We identified numerous opportunities to provide improved and more cost-effective logistical support to military operations, such as (1) improving Navy management of backorders, (2) improving shipyard labor estimates, (3) reassessing war reserve requirements, (4) having National Guard units use the Army’s supply system for direct supply operations and reducing the National Guard’s inventory investment, (5) focusing on the systemic causes of problem parts, and (6) examining whether additional land prepositioning of equipment could reduce afloat prepositioning requirements. We also identified continuing equipment shortages facing Army reserve support units and the need to overcoming these shortages a higher priority for reserve units facing deployment time frames comparable to active duty contingency forces. Our review of the operation and maintenance (O&M) budget requests for fiscal year 1994 identified potential reductions and rescissions of about $6.7 billion to the services’ and the Department of Defense’s (DOD) activities. These reductions and rescissions were due to excessive unobligated funds remaining from prior years’ O&M appropriations, changed circumstances since the time the budget requests were submitted, and other factors. In reviewing personnel issues, we (1) provided important objective data to the Congress for use in its deliberations on the issue of homosexuals in the military and (2) identified force-shaping and skill imbalance problems confronting DOD as it downsizes its civilian work force issues germane to congressional decisionmaking in authorizing the use of financial separation incentives. We also identified significant differences in the cost of producing military officers between the three types of commissioning programs and needed management improvements to produce a more cost-effective mix of officer personnel. Prepositioning of equipment and support items is intended to enable the United States to respond to distant contingencies more rapidly than if they had to be deployed from the United States. The Gulf War highlighted the importance of afloat prepositioning; its costs, however, are about four times that of land prepositioning. While the U.S. Transportation Command continues to investigate additional afloat prepositioning, we have recommended that the Secretary of Defense determine whether additional land prepositioning could reduce afloat prepositioning requirements. (GAO/NSIAD-93-39) The Congress continues to have a high degree of interest in the afloat prepositioning issue, particularly as it affects the potential for Army-Marine Corps joint operations. DOD has been delayed in responding to recommendations in our report on Officer Commissioning Programs about the need for management improvements to produce a more cost-effective personnel mix from the commissioning sources. (GAO/NSIAD-93-37) A part of the delay is attributable apparently to delays in the appointment process for relevant assistant secretaries. The Congress has supported increased use of simulation technology but has had some concerns about DOD’s management in this area. A focal point for improved interservice coordination and management initiatives has been the Defense Modeling and Simulation Office, created in 1991. But, action to provide permanent staffing for this office is still incomplete, with only one permanent position currently provided. (GAO/NSIAD-93-122) Aerial Refueling Initiative: Cross-Service Analysis Needed To Determine Best Approach (GAO/NSIAD-93-186) Air Force Supply: Improvements Needed in Management of Air Mobility Command’s Forward Supply System (GAO/NSIAD-93-10) Army Force Structure: Need to Determine Changed Threat’s Impact on Reserve Training Divisions (GAO/NSIAD-92-182) Army Housing: Overcharges and Inefficient Use of On-Base Lodging Divert Training Funds (GAO/NSIAD-90-241) Army Housing: Overcharges for On-Base Lodging Have Not Been Repaid (GAO/NSIAD-93-188) Army Inventory: Current Operating and War Reserve Requirements Can Be Reduced (GAO/NSIAD-93-119) Army Inventory: Divisions’ Authorized Levels of Demand-Based Items Can be Reduced (GAO/NSIAD-93-9) Army Logistics: Better Approach Needed to Identify Systemic Causes of Problem Parts (GAO/NSIAD-93-86) Army Maintenance: Strategy Needed to Integrate Military and Civilian Personnel Into Wartime Plans (GAO/NSIAD-93-95) Army Reserve Components: Accurate and Complete Data Are Needed to Monitor Full-Time Support Program (GAO/NSIAD-92-70) Army Training: Commanders Lack Guidance and Training for Effective Use of Simulations (GAO/NSIAD-93-211) Army Training: Expenditures for Troop Schools Have Not Been Justified (GAO/NSIAD-93-172) Army Training: Long-standing Control Problems Hinder the CAPSTONE Program (GAO/NSIAD-92-261) Contract Maintenance: Improvements Needed in Air Force Management of Interim Contractor Support (GAO/NSIAD-92-233) Defense Relocation Assistance: Service Information Systems Operating, but Not Yet Interactive (GAO/NSIAD-92-186) Depot Maintenance: Requirement to Update Maintenance Analyses Should Be Modified (GAO/NSIAD-93-163) Desert Shield/Storm: Air Mobility Command’s Achievements and Lessons for the Future (GAO/NSIAD-93-40) Disaster Assistance: DOD’s Support for Hurricanes Andrew and Iniki and Typhoon Omar (GAO/NSIAD-93-180) DOD Commercial Transportation: Savings Possible Through Better Audit and Negotiation of Rates (GAO/NSIAD-92-61) DOD Service Academies: Improved Cost and Performance Monitoring Needed (GAO/NSIAD-91-79) Household Goods: Competition Among Commercial Movers Serving DOD Can Be Improved (GAO/NSIAD-90-50) Military Afloat Prepositioning: Wartime Use and Issues for the Future (GAO/NSIAD-93-39) Military Aircraft: Policies on Government Officials’ Use of 89th Military Airlift Wing Aircraft (GAO/NSIAD-92-133) Military Downsizing: Balancing Accessions and Losses Is Key to Shaping the Future Force (GAO/NSIAD-93-241) Military Health Care: Recovery of Medical Costs From Liable Third Parties Can Be Improved (GAO/NSIAD-90-49) National Guard: Using the Army’s Supply System Will Reduce the Guard’s Inventory Investment (GAO/NSIAD-93-25) Naval Academy: Gender and Racial Disparities (GAO/NSIAD-93-54) Naval Air Operations: Interservice Cooperation Needs Direction From Top (GAO/NSIAD-93-141) Naval Reserves: The Frigate Trainer Program Should Be Canceled (GAO/NSIAD-92-114) Navy Housing: Transient Lodging Operations Need Effective Management Control (GAO/NSIAD-92-27) Navy Maintenance: Improved Labor Estimates Can Reduce Shipyard Costs (GAO/NSIAD-93-199) Navy Supply: Improved Backorder Management Will Reduce Material Costs (GAO/NSIAD-93-131) Officer Commissioning Programs: More Oversight and Coordination Needed (GAO/NSIAD-93-37) Operation Desert Shield: Problems in Deploying by Rail Need Attention (GAO/NSIAD-93-30) Operation Desert Storm: Army Not Adequately Prepared to Deal With Depleted Uranium Contamination (GAO/NSIAD-93-90) Operation Desert Storm: Full Army Medical Capability Not Achieved (GAO/NSIAD-92-175) Operation Desert Storm: Improvements Required in the Navy’s Wartime Medical Care Program (GAO/NSIAD-93-189) Operation Desert Storm: Limits on the Role and Performance of B-52 Bombers in Conventional Conflicts (GAO/NSIAD-93-138) Simulation Training: Management Framework Improved, but Challenges Remain (GAO/NSIAD-93-122) Strategic Sealift: Part of the National Defense Reserve Fleet Is No Longer Needed (GAO/NSIAD-92-3) The Department of Defense (DOD) faces many critical issues as the nation moves toward building and supporting a smaller yet effective fighting force that can respond to post-Cold War national security needs. Our reports and testimonies have been used extensively by the Congress in its oversight of force structure, active-reserve mix, forward presence, roles and missions, and intelligence issues. We aided the Congress in evaluating DOD’s downsizing plans by analyzing the assumptions underlying force structure decisions and assessing alternative ways to accomplish missions. For example, our reviews of DOD’s Mobility Requirements Study showed that other assumptions were as compelling as those used in the study and that changing the assumptions might reduce requirements for sealift capability. We also reported to the Congress that the Air Force’s plans to build force projection composite wings in the United States were based on limited analysis of cost and other factors and would have significant limitations operating in peacetime and wartime. Our report on Navy carrier battle groups increased congressional awareness of less costly options to satisfy many of the carrier battle groups’ traditional roles without unreasonably increasing the risk that U.S. national security would be threatened. For example, we found that a less expensive carrier force could be achieved by relying more heavily on increasingly capable surface combatants and amphibious assault ships to provide forward presence. Our reviews of Army force structure issues contributed to congressional debate of several key aspects of the Army’s force reduction plans. We reported that better coordination between the reserve components in the selection of units for inactivation might have provided more assurance that readiness of the Army’s total force was maximized and that individual states were not disproportionately affected by the combined National Guard and Army Reserve inactivations. Our reviews of Desert Storm activities increased awareness of support force shortages, problems encountered in mobilizing reserve forces for the war, and the effect of the limitations of the President’s Selected Reserve callup authority. Our testimony and report on problems encountered in managing the withdrawal of personnel and equipment from Europe increased congressional awareness that the pace of the withdrawal was exceeding the Army’s ability to manage it. We assisted in congressional efforts to reduce unnecessary overlap and duplication among the services through our work—examining service roles and functions. In August 1993, we reported that the depth of analysis of many functions included in the review by the Chairman of the Joint Chiefs of Staff roles and functions was insufficient for proposing significant reductions in overlapping functions. We also identified several opportunities for additional reductions and consolidations that would enhance the economy and the efficiency of DOD operations, such as reassessing Army and Marine Corps requirements for light forces, consolidating certain test capabilities, and reassessing the composition of nuclear forces. With the emergence of DOD as a major player in the war on drugs, we have assessed how well it uses its intelligence assets to support the drug law enforcement community. This work has been used extensively by the House Committee on Government Operations. The Chairs of the major authorizing and appropriating committees and the various special and select committees on drug issues have also requested our assistance. We have issued several reports on this issue and have made recommendations affecting the Defense Intelligence agency, the Office of National Drug Control Policy, the drug law enforcement community, and the Director of the Central Intelligence Agency. Regarding Army Reserve Forces, we recommended that the Secretary of the Army, in refining the Army’s reserve force reduction plans, formalize coordination procedures among the National Guard Bureau; the Office of the Chief, Army Reserve; the Forces Command; and U.S. Army Reserve Command officials and better document the reasons why specific units are selected for inactivation or reduction. (GAO/NSIAD-93-145) Regarding Navy tactical aviation force structure, we recommended that the Secretary of Defense direct the Secretary of the Navy to revalidate the need for another strike and fighter aircraft by demonstrating that there was or would be a military threat that it could not meet with the present weapons systems and force structure. (GAO/NSIAD-93-144) Air Force Organization: More Assessment Needed Before Implementing Force Protection Composite Wings (GAO/NSIAD-93-44) Army Force Structure: Future Reserve Roles Shaped by New Strategy, Base Force Mandates, and Gulf War (GAO/NSIAD-93-80) Army Reserve Forces: Applying Features of Other Countries’ Reserves Could Provide Benefits (GAO/NSIAD-91-239) Army Reserve Forces: Process for Identifying Units for Inactivation Could Be Improved (GAO/NSIAD-93-145) DOD’s Mobility Requirements: Alternative Assumptions Could Affect Recommended Acquisition Plan (GAO/NSIAD-93-103) Financial Systems: Weaknesses Impede Initiatives to Reduce Air Force Operations and Support Costs (GAO/NSIAD-93-70) Mine Warfare: Consolidation at Ingleside Has Not Been Justified (GAO/NSIAD-93-147) Naval Aviation: Consider All Alternatives Before Proceeding With the F/A-18E/F (GAO/NSIAD-93-144) Navy Acquisition: AN/BSY-1 Combat System Operational Evaluation (GAO/NSIAD-93-81) Navy Carrier Battle Groups: The Structure and Affordability of the Future Force (GAO/NSIAD-93-74) Navy Maintenance: Public/Private Competition for F-14 Aircraft Maintenance (GAO/NSIAD-92-143) Navy Torpedo Program: MK-48 ADCAP Propulsion System Upgrade Not Needed (GAO/NSIAD-92-191) Operation Desert Storm: Army Had Difficulty Providing Adequate Active and Reserve Support Forces (GAO/NSIAD-92-67) Overseas Allowances: Improvements Needed in Administration (GAO/NSIAD-90-46) POW/MIA Affairs: Issues Related to the Identification of Human Remains From the Vietnam Conflict (GAO/NSIAD-93-7) Reserve Forces: Aspects of the Army’s Equipping Strategy Hamper Reserve Readiness (GAO/NSIAD-93-11) Roles and Functions: Assessment of the Chairman of the Joint Chiefs of Staff Report (GAO/NSIAD-93-200) U.S. Corps of Engineers: Better Management Needed for Mobilization Support (GAO/NSIAD-93-116) The United States Armed Forces’ technologically advanced weapons systems have been seen as a major factor in our military success in the Persian Gulf War. This technological superiority has always been emphasized as the strength we needed to meet the numerically superior Warsaw Pact. The need to maintain this edge, even after the collapse of the Soviet Union and the dissolution of the Warsaw Pact, has been a constant theme of the services and the Department of Defense (DOD). But, the long-range cost of acquiring the advanced systems that the Services see as needed is staggering—especially in a period of shrinking defense budgets. DOD is proposing to spend several hundred billion dollars through the 1990s on the development and procurement of weapon systems and related items. In response to the planned system developments and congressional interest in reducing unneeded expenditures, we have continued several bodies of work, evaluating the requirements for and the economy, the efficiency and the effectiveness of planned acquisitions of major air; sea; ground; space; missile; electronic warfare; and command, control, communication, and intelligence systems. In addition, to assist the Appropriations and Armed Services Committees, we have conducted specific budget analyses that identified over $2 billion in potential reductions in the Fiscal Year 1994 Procurement and Research, Development, Test, and Evaluation Budgets. We supported congressional deliberations on the B-2 and identified over $100 million in program savings that could be achieved by the Air Force because of changes to the production schedule. On the basis of our suggestions, the Air Force took actions to achieve these savings. Our work on the C-17 was instrumental in the congressional decision to limit fiscal year 1993 production to six rather than the requested eight aircraft because of cost increases, schedule slippage, and technical problems identified during testing. That decision resulted in a $658 million reduction in the fiscal year 1993 C-17 production budget. Our work on the Airborne Self-Protection Jammer resulted in the Congress directing that the Navy not obligate funds for procurement of the system. The Navy, in turn, terminated the program—a projected saving of $975.2 million over the next 10 years. Our work on Military Satellite Communications pointed out opportunities for saving billions of dollars by taking advantage of modern technology and by using alternative satellite architectures based on common bus designs—standard satellite platforms capable of carrying various payloads. We provided information to the Congress on several ground systems, including the heavy equipment transporter and the family of medium tactical vehicles. In both cases, we noted problems that could significantly affect the success of the programs. As a result of our work, some members of the Congress have called on the Army to cease production of the heavy equipment transporter until the problems we found have been corrected. We have also continued our work on missiles, providing information and recommending improvements in the management of the acquisition of a number of systems, including the Tri-Service Standoff Attack Missile and the Advanced Cruise Missile. In February 1993, we reported on the Apache manufacturer’s oversight of its subcontractors, noting that ineffective oversight by the manufacturer and the Army contributed to past problems with parts for the Apache. We recommended that the Secretary of Defense not commit billions of dollars in production funds for the Longbow Apache program until the oversight of subcontractors was adequate to ensure satisfactory performance. (GAO/NSIAD-93-108) In July 1993, we reported that DOD could save billions by adopting alternative satellite architectures based on common bus design and by inserting modern technology into its existing communication satellite systems. We recommended that the Secretary of Defense (1) not make any decisions regarding replenishment of existing military satellite communications systems until a coordinated process was established to insert modern technology into the architecture and (2) reassess the dual common bus alternative as a means of inserting modern technology to preclude continuation of customized satellites. (GAO/NSIAD-93-216) In July 1993, we reported that the heavy equipment transporter had not shown that it could adequately accomplish its mission or that it was suitable for fielding. We recommended that the Secretary of Defense require the Army to stop conditionally accepting heavy equipment transporter tractors and trailers until the heavy equipment transporter showed that it could meet its intended mission and reliability and maintainability requirements. (GAO/NSIAD-93-228) In August 1993, we reported on the Army’s procurement of medium tactical trucks—the 2.5-ton and 5-ton payload classes. The original procurement plan called for replacing over 120,000 trucks over 15 years at a cost of over $17 billion. We found that the current plan to stretch out the procurement over 30 years was not practical. We recommended that the Secretary of the Army reassess the cost-effectiveness of the 30-year acquisition strategy and reconsider alternatives, especially the M939A2 alternative. We also recommended that the Secretary of the Army not proceed to full-rate production of the medium tactical vehicles until the reassessment was complete. ADP Procurement: Prompt Navy Action Can Reduce Risks to SNAP III Implementation (GAO/IMTEC-92-69) Air Force ADP: Lax Contract Oversight Led to Waste and Reduced Competition (GAO/IMTEC-93-3) Antiarmor Weapons Acquisitions: Assessments Needed to Support Continued Need and Long-Term Affordability (GAO/NSIAD-93-49) Apache Helicopter: Tests Results for 30-Millimeter Weapon System Inconclusive (GAO/NSIAD-93-134) Army Acquisition: Effective Subcontractor Oversight Needed Before Longbow Apache Production (GAO/NSIAD-93-108) Army Acquisition: Medium Truck Program Is Not Practical and Needs Reassessment (GAO/NSIAD-93-232) Army Acquisition: More Testing Needed to Solve Heavy Equipment Transporter System Problems (GAO/NSIAD-93-228) Army Acquisition: Palletized Load System Acquisition Quantity Overstated (GAO/NSIAD-92-163) Ballistic Missile Defense: Information on Directed Energy Programs for Fiscal Years 1985 Through 1993 (GAO/NSIAD-93-182) Comanche Helicopter: Program Needs Reassessment Due to Increased Unit Cost and Other Factors (GAO/NSIAD-92-204) Communications Acquisition: Army Still Needs to Determine Battlefield Communications Capability (GAO/NSIAD-93-33) Defense Support Program: Ground Station Upgrades Not Based on Validated Requirements (GAO/NSIAD-93-148) Desert Shield/Storm: Air Mobility Command’s Achievements and Lessons for the Future (GAO/NSIAD-93-40) Drug Control: Communications Network Funding and Requirements Uncertain (GAO/NSIAD-92-29) Drug Control: Heavy Investment in Military Surveillance Is Not Paying Off (GAO/NSIAD-93-220) Drug Control: Inadequate Guidance Results in Duplicate Intelligence Production Efforts (GAO/NSIAD-92-153) Electronic Warfare: Inadequate Testing Led to Faulty SLQ-32s on Ships (GAO/NSIAD-93-272) Electronic Warfare: Laser Warning System Production Should Be Limited (GAO/NSIAD-93-14) Embedded Computer Systems: Software Development Problems Delay the Army’s Fire Direction Data Manager (GAO/IMTEC-92-32) ICBM Modernization: Minuteman III Guidance Replacement Program Has Not Been Adequately Justified (GAO/NSIAD-93-181) Javelin Antitank Weapon: Quantity and Identification Capability Need to Be Reassessed (GAO/NSIAD-92-330) Military Communications: Joint Tactical Information Distribution System Issues (GAO/NSIAD-93-16) Military Satellite Communications: Milstar Program Issues and Cost-Saving Opportunities (GAO/NSIAD-92-121) Military Satellite Communications: Opportunity to Save Billions of Dollars (GAO/NSIAD-93-216) National Aero-Space Plane: A Need for Program Direction and Funding Decisions (GAO/NSIAD-93-207) Navy Shipbuilding: Allegations of Mischarging at Bath Iron Works (GAO/NSIAD-91-85) Software Tools: Defense Is Not Ready to Implement I-CASE Departmentwide (GAO/IMTEC-93-27) Tactical Intelligence: Joint STARS Needs Current Cost and Operational Effectiveness Analysis (GAO/NSIAD-93-117) Undersea Surveillance: Navy Continues to Build Ships Designed for Soviet Threat (GAO/NSIAD-93-53) Dramatic events on both the international and national scene—the end of the Cold War, worldwide concerns about nuclear proliferation, new mandates to clean up and restore rather than continuing to build a nuclear weapons complex, passage of the Energy Policy Act of 1992, and the advent of an administration focused on improving our economy through the application of science and technology initiatives—have shifted the mission, altered the landscape, and posed new and significant challenges for the Department of Energy (DOE). Our work in recent years has played a major role in both exposing and proposing actions to deal with these and related issues and has led to savings of over $5 billion. Beginning in the late 1980s, we issued a number of reports questioning various aspects of DOE’s new production reactor program. Initially, we focused on the lack of necessary information related to the cost, the benefits, and the schedule of building two multibillion dollar tritium production reactors. By early 1991, however, the need for additional nuclear weapons—and consequently tritium—was decreasing and we questioned the need and the strategy for building a new tritium production reactor. In September 1992, the Secretary of Energy informed the Congress that, because of nuclear weapons stockpile levels and the resulting effects on the need for tritium, the new production reactor program would be deferred and reactor design and construction efforts would be brought to a prompt and orderly closure. By not building a new reactor to produce tritium, DOE will save at least $3.5 billion. We have continued to review the broad range of technical and management issues critical to the successful and safe cleanup of the nuclear weapons complex. Our efforts resulted in recommendations to (1) improve the $50 billion vitrification program at the Hanford Site, (2) implement cost-effective improvements in well drilling and ground water monitoring that could lead to over $100 million in savings, and (3) improve DOE’s Environmental Restoration Management Contracting and cleanup contractor indemnification approaches. We also continued to address the issue of improving the safety and the health of cleanup workers with a comprehensive report on DOE’s Site Resident Program—its principal method for conducting independent oversight—and a review of the Tiger Team Program. Finally, we identified $320 million in potential savings in DOE’s fiscal year 1994 cleanup program budget. We have consistently made recommendations to improve DOE’s management and oversight of its contractors, which operate DOE’s nuclear weapons complex and other facilities at a cost of over $16 billion annually. The recommendations have ranged from identifying better ways to administer the contractor performance award fee process to reducing the number of nonstandard contract clauses, which have allowed contractors to virtually ignore DOE direction. We have also recommended improved controls over funds obligated to major contractors, resulting in savings in fiscal year 1993 of $334 million. Additional savings totaling over $1.3 billion are expected by the end of fiscal year 1994. We have also recommended ways DOE can improve its information resource management (IRM), and our ongoing management review is highlighting additional reform measures to improve overall contractor accountability. We have recommended that the Congress consider improvements that would lead to more comprehensive national energy planning. We have also provided the Congress with a comprehensive analysis of the factors that affect crude oil and petroleum product prices during shock and nonshock periods, and we pointed out other nations’ policies for reducing oil and coal use in their industrial and transportation sectors. In addition, our work was instrumental in the development of several key provisions of the Energy Policy Act of 1992, including (1) added requirements for octane labeling for alternative motor fuels, along with additional state authority to enforce such requirements, and (2) federal certification of training programs for mechanics converting gasoline vehicles to operate on alternative fuels. On the broader science and technology front, our work on the Small Business Innovation Research program—in which 11 agencies, including DOE, participate—was instrumental in congressional action leading to the re-authorization of the program but with more emphasis on commercialization in the private sector. In addition, our work pointed up abuses in charges for indirect, or overhead, costs by universities for federally funded research activities and led to a number of significant changes in the process for negotiating indirect cost rates, with other changes still under consideration by the Office of Management and Budget (OMB). We also alerted the Congress about potential conflicts of interest at universities and other organizations carrying out federal research activities, and we pointed out that the Superconducting Supercollider was over budget, behind schedule, and would cost in excess of $11 billion. In April 1993, we reported that now is an opportune time for the Congress to consider strengthening national energy policy planning. DOE has long struggled to develop useful energy plans and new requirements to integrate important issues, such as global warming policy options, which make it important to give DOE sufficient time to prepare comprehensive plans for the Congress to consider. DOE officials agree that more time is needed to prepare comprehensive plans and are working with the Congress to change reporting time frames. (GAO/RCED-93-29) In August 1993, we reported that DOE still had significant and pervasive management problems and was failing to properly manage and maintain its vast nuclear weapons complex, which is beset with major environmental contamination. Much of DOE’s problem stems from loose controls over its contractors, which have long dominated departmental activities while eluding effective governmental oversight. We believe that DOE’s leadership should establish a long-term strategy for correcting its management problem. Although DOE officials agree that their problems are significant and are making changes in DOE’s organizational structure and contracting practices, fundamental problems in communication and work force skills will make reform difficult to achieve in the short run. (GAO/RCED-93-72) In September 1992, we recommended that DOE, among other things, more closely link its IRM planning with strategic mission planning; give managers more authority to plan for their information needs on a departmentwide basis; and identify IRM activities as a material internal control weakness, under the Federal Managers’ Financial Integrity Act, until IRM resources are being applied efficiently and are applied in accordance with laws, regulations, and policies. Although DOE agreed to implement all of our recommendations and has declared its IRM program deficiencies a material control weakness, it has not fully implemented the remaining recommendations. (GAO/IMTEC-92-10) In August 1991, we made recommendations to DOE and OMB that could reduce the cost of DOE’s support services contracts by $50 million to $100 million annually. DOE has taken some recommended actions, such as conducting cost comparisons before contracting for support services. In June 1993, however, the agencies agreed that efforts to achieve cost-effectiveness in DOE’s support services contracts should be included as part of Secretary O’Leary’s DOE-wide Contract Reform Task Force. Results of the task force are not expected until December 1993. Consequently, additional time is needed to determine if DOE’s and OMB’s actions will be adequate. (GAO/RCED-91-186) In November 1992, we recommended that DOE take actions to ensure that its contractors are adequately analyzing, correcting, and validating security deficiencies at the facilities they operate for DOE. DOE has begun taking action to implement the recommendations; additional time, however, will be required to determine if those actions will be adequate. (GAO/RCED-93-10) In March 1993, we recommended that DOE postpone construction of the Hanford vitrification plant and renegotiate the Tri-Party Agreement with the state and the Environmental Protection Agency to establish a more realistic program schedule. In addition, we recommended that DOE develop life-cycle cost estimates for the program and report these to the Congress. DOE agreed with these recommendations and has deferred construction for 6 months to allow time to consider changes to the Tri-Party Agreement. In addition, DOE is developing life-cycle cost estimates for the program. (GAO/RCED-93-99) In May 1993, we recommended that DOE take a number of steps to strengthen a key headquarters program that maintains representatives at DOE sites to independently monitor field office and contractor performance in protecting workers’ safety and health. DOE has accepted our recommendations and has begun to implement them. But, additional time is needed to determine whether DOE’s actions will be adequate. (GAO/RCED-93-85) In July 1993, we recommended that DOE develop a consistent policy for indemnifying its contractors against liabilities that could arise from the cleanup of the nation’s weapons complex and that the policy should reflect existing statutory requirements for indemnifying Superfund cleanup contractors. The report was released September 8, 1993, and DOE has not yet had a chance to respond to our recommendations. (GAO/RCED-93-167) In May 1993, we reported that DOE’s investigation of Yucca Mountain, Nevada, as a potential site for disposal of highly radioactive nuclear waste will, at its present pace, take at least 5 to 13 years longer than planned and cost more than DOE has estimated. Furthermore, DOE’s initiatives to mitigate the probable delay, including establishing a revolving fund to ensure higher annual project funding, did not adequately address the disconnection between disposal program policy and funding priorities. We endorsed the Nuclear Waste Technical Review Board’s earlier call for an independent review of the program. In conjunction with this, we recommended that the Congress defer consideration of changing the method for funding the disposal program until, among other things, an independent review of the program has been completed and appropriate legislative, policy, and/or programmatic changes to the program have been implemented. (GAO/RCED-93-124) In June 1993, we recommended that in reviewing agreements for nuclear cooperation, the Congress may wish to consider the impact of an agreement’s terms on the Congress’s opportunities for oversight and on U.S nonproliferation goals. As of late 1993, no proposed agreements for nuclear cooperation had come before the Congress for review. (GAO/RCED-93-154) In April 1993, because of the inconsistent way in which the Nuclear Regulatory Commission evaluates its nuclear materials licensing programs in achieving the goal of adequately protecting the public from radiation, we recommended that the Chair establish (1) common performance indicators in order to obtain comparable information to evaluate the effectiveness of both the agreement-state and Nuclear Regulatory Commission (NRC)-regulated state program in meeting NRC’s goal and (2) specific criteria and procedures for suspending or revoking an agreement-state program using the new performance indicators. Once NRC ensures the effectiveness of the NRC-regulated state program using the new performance indicators, it should take aggressive action to suspend or revoke any agreement-state program that is incompatible or inadequate with the performance indicators. NRC agreed with our recommendations and is implementing them. (GAO/RCED-93-90) In April 1993, we recommended that NRC establish common performance indicators for evaluating how the NRC-regulated and agreement-state programs regulate nuclear materials and develop specific criteria and procedures for suspending or revoking an agreement-state program. NRC has accepted our recommendations and intends to implement a new evaluation program beginning in 1994 using performance indicators and to develop specific written procedures for terminating agreements with the agreement states. But, additional time will be needed to determine whether NRC’s actions will be adequate. (GAO/RCED-93-90) In December 1992, we recommended that federal agencies operating royalty-sharing programs under the Federal Technology Transfer Act of 1986 take various actions to motivate scientists at federal laboratories to seek patents and licenses for their inventions. These include establishing an annual threshold of income to adequately reward federal inventors for their work and making more effective use of the royalties returned to federal laboratories. While some agencies have responded with positive steps, others are have not, and congressional actions may be needed to further encourage these steps. (GAO/RCED-93-6) In August 1992, we reported that the government had been charged millions of dollars for unallowable, questionable, or improperly allocated indirect costs for federally sponsored research at universities. We recommended that OMB designate a single agency to negotiate indirect cost rates and examine ways to more directly involve the university community in evaluating alternative methods for reimbursing universities for indirect costs. OMB has taken various actions to tighten the process and plans to further study other issues, including the issue of designating one agency to negotiate rates with universities. (GAO/RCED-92-203) In May 1992, we reported that growing interactions between universities and businesses increased the potential for conflicts-of-interest or other relationships that might give a business an unfair advantage in commercializing the results of federally funded research. We recommended that the Department of Health and Human Services (HHS) and the National Science Foundation (NSF) require that their grantees have procedures in place to manage potential conflicts. The National Institute of Health Revitalization Act of 1993 (Public Law 103-43) requires that HHS promulgate a financial conflict-of-interest regulation by December 1993. Meanwhile, OMB is seeking to establish uniform requirements for HHS, NSF, and all other federal agencies. (GAO/RCED-92-104) In our September 1992 “wrap-up” report, we concluded that SEMATECH had shown that a government-industry research and development consortium could help improve a U.S. industry’s technological position. In the report, we identified eight lessons learned from the SEMATECH experience that the Congress may want to consider in authorizing support for future consortia. Among them, the Congress may wish to consider specific criteria for determining when federal support for SEMATECH—and any other future consortia—should appropriately be terminated. (GAO/RCED-92-283) Biotechnology: Managing the Risks of Field Testing Genetically Engineered Organisms (GAO/RCED-88-27) Cleanup Technology: Better Management for DOE’s Technology Development Program (GAO/RCED-92-145) Department of Energy: Better Information Resources Management Needed to Accomplish Missions (GAO/IMTEC-92-53) Department of Energy: Cleaning Up Inactive Facilities Will Be Difficult (GAO/RCED-93-149) Department of Energy: Management Problems Require a Long-Term Commitment to Change (GAO/RCED-93-72) DOE Management: Better Planning Needed to Correct Records Management Problems (GAO/RCED-92-88) DOE Management: Consistent Cleanup Indemnification Policy Is Needed (GAO/RCED-93-167) DOE Management: Impediments to Environmental Restoration Management Contracting (GAO/RCED-92-244) Electricity Regulation: Factors Affecting the Processing of Electric Power Applications (GAO/RCED-93-168) Energy Conservation: Appliance Standards and Labeling Programs Can Be Improved (GAO/RCED-93-102) Energy Information: Department of Energy Security Program Needs Effective Information Systems (GAO/IMTEC-92-10) Energy Management: Contract Audit Problems Create the Potential for Fraud, Waste, and Abuse (GAO/RCED-92-41) Energy Management: DOE Has Improved Oversight of Its Work for Others Program (GAO/RCED-93-111) Energy Management: Systems Contracting Weaknesses Continue (GAO/RCED-93-143) Energy Management: Using DOE Employees Can Reduce Costs for Some Support Services (GAO/RCED-91-186) Energy Policy: Changes Needed to Make National Energy Planning More Useful (GAO/RCED-93-29) Environment, Safety, and Health: Environment and Workers Could Be Better Protected at Ohio Defense Plants (GAO/RCED-86-61) Federal Research: Lessons Learned From SEMATECH (GAO/RCED-92-283) Federal Research: System for Reimbursing Universities’ Indirect Costs Should Be Reevaluated (GAO/RCED-92-203) Fossil Fuels: Improvements Needed in DOE’s Clean Coal Technology Program (GAO/RCED-92-17) Fossil Fuels: Ways to Strengthen Controls Over Clean Coal Technology Project Costs (GAO/RCED-93-104) Hydroelectric Dams: Issues Surrounding Columbia River Basin Juvenile Fish Bypasses (GAO/RCED-90-180) Natural Gas: Factors Affecting Approval Times for Construction of Natural Gas Pipelines (GAO/RCED-92-100) Natural Gas: FERC’s Compliance and Enforcement Programs Could Be Further Enhanced (GAO/RCED-93-122) Nuclear Energy: Consequences of Explosion of Hanford’s Single-Shell Tanks Are Understated (GAO/RCED-91-34) Nuclear Energy: Environmental Issues at DOE’s Nuclear Defense Facilities (GAO/RCED-86-192) Nuclear Health and Safety: More Attention to Health and Safety Needed at Pantex (GAO/RCED-91-103) Nuclear Health and Safety: More Can Be Done to Better Control Environmental Restoration Costs (GAO/RCED-92-71) Nuclear Materials: Nuclear Arsenal Reductions Allow Consideration of Tritium Production Options (GAO/RCED-93-189) Nuclear Nonproliferation: Better Controls Needed Over Weapons-Related Information and Technology (GAO/RCED-89-116) Nuclear Nonproliferation: Controls Over the Commercial Sale and Export of Tritium Can Be Improved (GAO/RCED-91-90) Nuclear Nonproliferation: DOE Needs Better Controls to Identify Contractors Having Foreign Interests (GAO/RCED-91-83) Nuclear Nonproliferation: Japan’s Shipment of Plutonium Raises Concerns About Reprocessing (GAO/RCED-93-154) Nuclear Regulation: Better Criteria and Data Would Help Ensure Safety of Nuclear Materials (GAO/RCED-93-90) Nuclear Regulation: NRC’s Decommissioning Procedures and Criteria Need to Be Strengthened (GAO/RCED-89-119) Nuclear Safety: Potential Security Weaknesses at Los Alamos and Other DOE Facilities (GAO/RCED-91-12) Nuclear Science: Consideration of Accelerator Production of Tritium Requires R&D (GAO/RCED-92-154) Nuclear Science: Monitoring Improved, but More Planning Needed for DOE Test and Research Reactors (GAO/RCED-92-123) Nuclear Security: DOE Needs a More Accurate and Efficient Security Clearance Program (GAO/RCED-88-28) Nuclear Security: DOE’s Progress on Reducing Its Security Clearance Work Load (GAO/RCED-93-183) Nuclear Security: Improving Correction of Security Deficiencies at DOE’s Weapons Facilities (GAO/RCED-93-10) Nuclear Security: Safeguards and Security Planning at DOE Facilities Incomplete (GAO/RCED-93-14) Nuclear Waste: Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall (GAO/RCED-90-65) Nuclear Waste: Development of Casks for Transporting Spent Fuel Needs Modification (GAO/RCED-92-56) Nuclear Waste: DOE’s Management of Single-Shell Tanks at Hanford, Washington (GAO/RCED-89-157) Nuclear Waste: DOE’s Repository Site Investigations, a Long and Difficult Task (GAO/RCED-92-73) Nuclear Waste: Hanford Tank Waste Program Needs Cost, Schedule, and Management Changes (GAO/RCED-93-99) Nuclear Waste: Hanford’s Well-Drilling Costs Can Be Reduced (GAO/RCED-93-71) Nuclear Waste: Improvements Needed in Monitoring Contaminants in Hanford Soils (GAO/RCED-92-149) Nuclear Waste: Operation of Monitored Retrievable Storage Facility Is Unlikely by 1998 (GAO/RCED-91-194) Nuclear Waste: Pretreatment Modifications at DOE Hanford’s B Plant Should Be Stopped (GAO/RCED-91-165) Nuclear Waste: Questionable Uses of Program Funds at Lawrence Livermore Laboratory (GAO/RCED-92-157) Nuclear Waste: Status of Actions to Improve DOE User-Fee Assessments (GAO/RCED-92-165) Nuclear Waste: Yucca Mountain Project Behind Schedule and Facing Major Scientific Uncertainties (GAO/RCED-93-124) Personnel Security: Efforts by DOD and DOE to Eliminate Duplicative Background Investigations (GAO/RCED-93-23) Safety and Health: Key Independent Oversight Program at DOE Needs Strengthening (GAO/RCED-93-85) Technology Transfer: Barriers Limit Royalty Sharing’s Effectiveness (GAO/RCED-93-6) Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers (GAO/RCED-92-30) Trans-Alaska Pipeline: Regulators Have Not Ensured That Government Requirements Are Being Met (GAO/RCED-91-89) University Research: Controlling Inappropriate Access to Federally Funded Research Results (GAO/RCED-92-104) Over the last 20 years, our nation has spent about $1 trillion to comply with environmental protection mandates. By the end of this decade, our nation will spend almost $160 billion annually to address environmental protection. Despite this investment and the resulting improvements, many environmental expectations remain unfulfilled. As a result of the federal budget deficit, the Environmental Protection Agency’s (EPA) operating budget has remained relatively flat. Yet, the agency must manage strengthened requirements to existing regulations and new mandates imposed on the regulated community. Despite increasing pressures to be accountable for solutions, EPA’s funding situation has caused it to rely heavily on states and local governments to implement and monitor environmental regulations. But, these governments also face budget constraints that limit their ability to meet these responsibilities. For example, states have not sufficiently funded enforcement of asbestos removal and disposal and localities have not been able to finance the billions of dollars needed to invest in the infrastructure to meet existing and new drinking water and wastewater treatment requirements. Our work has been in the forefront in highlighting our nation’s recurring environmental problems and recommending ways in which the Congress and EPA can effectively address those concerns. In an attempt to seek a more realistic balance between environmental expectations and available resources, we have continued to recommend that EPA develop priorities among these competing demands based on risk to human health and the environment. We recommended that, in testing both chemicals and pesticides, EPA give priority to regulating the high-risk compounds first. We also recommended that EPA work with the Congress to adequately fund those programs that it has acknowledged as high risks to the public. To highlight possible new sources of funding, we reported that carefully designed pollution taxes—levied on pollution emissions or on harmful products or substances—in some cases could be an alternative to regulation that would reduce pollution and raise revenues to invest in further environmental protection. Our work highlighted numerous delays in state implementation of the Clean Air Act (CAA). For example, we noted that EPA had delayed issuing final rules for the operating permit program, which in turn has delayed state programs. (GAO/RCED-93-59) Limited EPA and state resources have also hampered progress. We recommended that EPA help states obtain the necessary legislative authority to assess fees to cover costs and present its own realistic long-term resource estimates to the Congress. We further pointed out that states were late in submitting their CAA implementation plans to EPA and that the agency had been slow in approving them. (GAO/RCED-93-113) We recommended that EPA address these delays and delegate plan approval authority to EPA regional administrators. Evidence now suggests that inhaling asbestos fibers can cause cancer and other serious respiratory illnesses. Many older buildings that contain asbestos materials need to be renovated, and disturbing the materials may release asbestos fibers into the environment, posing a health threat. EPA is required to develop regulations to ensure worker safety when removing or disposing of asbestos materials. About 39 percent, or 14,000, of federally-owned buildings contain “friable” asbestos, a greater danger because simple hand pressure causes it to crumble, releasing fibers. We reported that the agencies in these buildings had not implemented asbestos maintenance programs. These agencies, along with the Occupational Safety and Health Administration (OSHA), are beginning to respond to our recommendations that OSHA clarify its requirements to safely manage asbestos removal and that agencies ensure compliance. (GAO/RCED-93-9) Generally, EPA delegated overall responsibility to monitor and enforce compliance with asbestos regulations to state and local agencies. Once again, states reported that they did not have the resources and EPA regional offices had inconsistently implemented the program. (GAO/RCED-92-83) EPA has begun to respond to our recommendations that to better use resources, it define through performance standards the minimum monitoring level for states while still protecting the public’s health. Several of our reports highlighted serious shortcomings in EPA’s drinking water protection program. In 1990, we reported that many water systems, particularly smaller systems, violated monitoring requirements and drinking water standards and that enforcement actions had done little to stop violators or increase compliance. In 1992, we reported funding shortages at the federal, state, and water system levels to correct problems and disparities between EPA’s low funding and the high health and environmental risks from drinking water contamination, according to EPA’s Science Advisory Board. (GAO/RCED-92-184) This year, we found that the pollution and funding problems persist and reported that EPA was not prepared to take over where state programs fail. We recommended that EPA work with the Congress to better fund the program at a level equal to the high risk to human health and the environment. (GAO/RCED-93-96 and GAO/RCED-93-144) We continue to highlight the significant gap between available resources and the nation’s wastewater treatment needs. We reviewed the state revolving funds program and found that it will not come close to helping the states meet their needs. (GAO/RCED-92-35) We recommended that EPA improve the financial skills of its regional staff to better help states, use models to better estimate program needs, including nonpoint-source pollution, and work with the Congress to build a strategy to close the resource gap. We found continuing concerns about EPA’s ability to assess and safely control chemical substances. (GAO/RCED-91-136) EPA had no clear objectives and direction for the testing program, reviewed relatively few of the potentially dangerous chemicals, and had issued few regulations since program inception in 1977. We recommended that EPA develop criteria and a methodology for the review process and ensure that EPA regulates chemicals on the basis of the level of risk they impose. While EPA has established a guide to decide whether a chemical presents a significant risk, the agency has not followed with criteria and a methodology to determine if this level of risk warrants regulation. In 1972 , EPA was given the formidable task to reassess all older pesticides on the basis of current scientific standards including those pertaining to cancer, reproductive disorders and birth defects. Disappointed with EPA’s progress, the Congress, in 1988, provided funds for additional resources and mandated that the reassessment be essentially completed by 1998. Our review of the program disclosed that despite increased progress, EPA may not complete this process until 2006. More importantly, EPA has not assessed the high-risk pesticides—those used in high volumes or on food—and they will continue to be used until a risk assessement is completed. We recommended that EPA concentrate on reregistering these pesticides first. (GAO/RCED-93-94) EPA, in the past, assumed low exposure to lawn care pesticides but now is concerned they may persist in the environment, resulting in higher exposure. We recommended that before re-registering these pesticides, EPA fully explore the health effects from such exposure and give priority to developing the test and assessment guidelines to do so. (GAO/RCED-93-80) Both EPA and the Food and Drug Administration (FDA) face challenges in controlling the entry of illegal pesticides into the U.S. environment through imported foods. For example, Mexico accounts for nearly one-half of all the fresh and frozen fruits and vegetables that the United States currently imports, and this would increase under an approved North American Free Trade Agreement. Since Mexico does not have a system to test for pesticide residues in food and allows the use of some pesticides that the United States does not, we recommended that EPA and FDA work with Mexican officials to resolve these differences and deal with new changes to pesticide regulations. (GAO/RCED-92-140) Our work also showed that about one-third of pesticide-tainted shipments of imported food ended up on grocery shelves. We reported similar findings in 1979 and again in 1986. We recommended that FDA take stronger prevention actions, including targeting repeat offenders for penalties, applying more-stringent control over suspect shipments, and using its program resources more effectively. We recommended that, to better achieve this, the Congress authorize the agency to pursue civil administrative penalties against violators. (GAO/RCED-92-205) EPA’s 1992 data showed that owners and operators of hazardous waste treatment, storage, and disposal facilities had begun cleaning up only 5 percent of the more than 3,400 sites that were potentially threatening human health and the environment and that EPA had scarce resources to oversee the cleanup. EPA began a new cleanup approach called stabilization that more quickly mitigates the threats from waste facilities. We recommended that the agency improve its data management system to measure its progress in stabilizing facilities, recover its oversight costs from site owners and operators, and update the program’s long-term cost and schedule estimates for the Congress. (GAO/RCED-93-15) The Congress, in 1976, tried to encourage new markets for recovered materials by directing federal agencies to purchase items composed of such materials. The agencies have made little progress. EPA has been slow to define which recovered products agencies should purchase and which purchasing practices they should follow. The Department of Commerce has done little to promote commercial use of proven recovery technology. Until recently, program leaders have not encouraged agencies to buy more recovered products. Consequently, we recommended that (1) the Congress clarify the authority agencies have to give products containing recovered materials price preferences while avoiding unreasonable prices, (2) EPA complete its strategy for developing procurement guidelines, (3) Commerce work to stimulate the demand for recovered materials, and (4) the Office of Management and Budget ensure that agencies set goals and make progress and incorporate program requirements into other governmentwide procurement policies. (GAO/RCED-93-58) Under Superfund, parties that contaminate sites either clean up the sites or reimburse the government for its cleanup costs. We found that EPA had a low record of cost recovery; was not measuring the success of its negotiations with responsible parties; and was not documenting reasons for important negotiation decisions, such as less than full settlements. (GAO/RCED-91-144 and GAO/HRD-93-10) Although EPA has proposed some regulatory changes to increase recoveries, to date the agency has not implemented our recommendations. We recommended that, to increase cost recovery, the Congress permit EPA to recover greater amounts of interest and require it to measure how well it performed with settlements. Although property and casualty insurance companies are concerned that their potentially high liability for cleanup costs could render them insolvent, we found they were not complying with Securities and Exchange Commission (SEC) requirements to disclose “material” environmental liabilities to investors. (GAO/RCED-93-108) We recommended the SEC Chair revise agency guidance to specify that insurance companies routinely disclose in their annual reports (1) the number and type of environmental claims and (2) an estimated range or minimum amount of associated claims costs and expenses. The federal government now owns many abandoned hazardous waste sites and faces significant cleanup funding liabilities. We reported that EPA and other federal agencies had not met statutory deadlines to determine whether federally-owned hazardous waste sites were so badly contaminated that agencies should conduct the cleanup under EPA’s Superfund program. (GAO/RCED-93-119) The backlog of sites not evaluated is growing and could take EPA a decade to assess, increasing risks and costs. EPA has not yet implemented our recommendation that it develop a plan to complete the evaluation of federal facilities. In reviewing cleanup at Department of Defense (DOD) waste sites, we recommended that DOD more quickly test for leaks in its underground storage tanks, upgrade existing tanks, permanently close tanks that were out of service for more than a year, and determine if they had caused contamination. (GAO/NSIAD-92-117) As a result, DOD has begun to reevaluate its guidance on storage tank maintenance. We also found problems with DOD’s management of contractor costs for hazardous waste cleanups. DOD does not routinely obtain and review the contractors’ cleanup cost projections, and it has paid contractors profits as part of their reimbursement for cleanup costs. We questioned some of DOD’s practices in directly paying contractors. These are independent DOD contractors that are responsible for the site contamination and are required to clean up the sites by EPA and the states. We recommended that DOD review its contractor reimbursement practices and implement revised guidance to correct concerns. (GAO/NSIAD-93-77) EPA does not apply its policy to penalize a company that significantly violates environmental laws and regulations an amount equal to the benefits the company would realize by not complying with these controls. Reasons include different enforcement philosophies, budgetary pressures to settle cases quickly, and concerns about jeopardizing local businesses. We recommended a number of actions that EPA could take to better oversee state and regional penalty practices and to better ensure accountability for following the agency’s penalty policies. (GAO/RCED-91-166) Subsequently, we made recommendations to correct insufficient or inconsistent program controls and the low priority placed on data quality assurance, which prevented EPA and the states from effectively ensuring that (1) dischargers reported accurate compliance monitoring data and (2) the states identified all facilities subject to regulation. (GAO/RCED-93-21) Air Pollution: Difficulties in Implementing a National Air Permit Program (GAO/RCED-93-59) Air Pollution: Impact of White House Entities on Two Clean Air Rules (GAO/RCED-93-24) Air Pollution: State Planning Requirements Will Continue to Challenge EPA and the States (GAO/RCED-93-113) Air Pollution: Unresolved Issues May Hamper Success of EPA’s Proposed Emissions Program (GAO/RCED-92-288) Asbestos in Federal Buildings: Federal Efforts to Protect Employees From Potential Exposure (GAO/RCED-93-9) Asbestos Removal and Disposal: EPA Needs to Improve Compliance With Its Regulations (GAO/RCED-92-83) Biological Warfare: Role of Salk Institute in Army’s Research Program (GAO/NSIAD-92-33) Cleanup Technology: Better Management for DOE’s Technology Development Program (GAO/RCED-92-145) Coast Guard: Coordination and Planning for National Oil Spill Response (GAO/RCED-91-212) Coast Guard: Inspection Program Improvements Are Under Way to Help Detect Unsafe Tankers (GAO/RCED-92-23) Coast Guard: Oil Spills Continue Despite Waterfront Facility Inspection Program (GAO/RCED-91-161) Department of Energy: Cleaning Up Inactive Facilities Will Be Difficult (GAO/RCED-93-149) Disinfectants: EPA Lacks Assurance They Work (GAO/RCED-90-139) DOE Management: Impediments to Environmental Restoration Management Contracting (GAO/RCED-92-244) Drinking Water: Consumers Often Not Well-informed of Potentially Serious Violations (GAO/RCED-92-135) Drinking Water: Inadequate Regulation of Home Treatment Units Leaves Consumers at Risk (GAO/RCED-92-34) Drinking Water: Key Quality Assurance Program Is Flawed and Underfunded (GAO/RCED-93-97) Drinking Water Program: States Face Increased Difficulties in Meeting Basic Requirements (GAO/RCED-93-144) Drinking Water: Projects That May Damage Sole Source Aquifers Are Not Always Identified (GAO/RCED-93-4) Drinking Water: Safeguards Are Not Preventing Contamination From Injected Oil and Gas Wastes (GAO/RCED-89-97) Drinking Water: Stronger Efforts Needed to Protect Areas Around Public Wells From Contamination (GAO/RCED-93-96) Drinking Water: Widening Gap Between Needs and Available Resources Threatens Vital EPA Program (GAO/RCED-92-184) Environmental Cleanup: Observations on Consistency of Reimbursements to DOD Contractors (GAO/NSIAD-93-77) Environmental Enforcement: EPA Cannot Ensure the Accuracy of Self-Reported Compliance Monitoring Data (GAO/RCED-93-21) Environmental Enforcement: EPA Needs a Better Strategy to Manage Its Cross-Media Information (GAO/IMTEC-92-14) Environmental Enforcement: Penalties May Not Recover Economic Benefits Gained by Violators (GAO/RCED-91-166) Environmental Liability: Property and Casualty Insurer Disclosure of Environmental Liabilities (GAO/RCED-93-108) Environmental Protection Agency: Plans in Limbo for Consolidated Headquarters Space (GAO/GGD-93-84) Environmental Protection Agency: Protecting Human Health and the Environment Through Improved Management (GAO/RCED-88-101) Environmental Protection: EPA’s Plans to Improve Longstanding Information Resources Management Problems (GAO/AIMD-93-8) Environmental Protection: Meeting Public Expectations With Limited Resources (GAO/RCED-91-97) Environmental Protection: Solving NASA’s Current Problems Requires Agencywide Emphasis (GAO/NSIAD-91-146) Environment, Safety, and Health: Environment and Workers Could Be Better Protected at Ohio Defense Plants (GAO/RCED-86-61) EPA’s Superfund TAG Program: Grants Benefit Citizens But Administrative Barriers Remain (GAO/T-RCED-93-1) Financial Audit: EPA’s Financial Statements for Fiscal Years 1988 and 1987 (GAO/AFMD-90-20) Fossil Fuels: Improvements Needed in DOE’s Clean Coal Technology Program (GAO/RCED-92-17) Fossil Fuels: Ways to Strengthen Controls Over Clean Coal Technology Project Costs (GAO/RCED-93-104) General Services Administration: Efforts to Communicate About Asbestos Abatement Not Always Effective (GAO/GGD-92-28) Guidelines Needed for EPA’s Tolerance Assessments of Pesticide Residues in Food (GAO/T-RCED-89-35) Hazardous Materials: Upgrading of Underground Storage Tanks Can Be Improved to Avoid Costly Cleanups (GAO/NSIAD-92-117) Hazardous Waste: Data Management Problems Delay EPA’s Assessment of Minimization Efforts (GAO/RCED-91-131) Hazardous Waste Exports: Data Quality and Collection Problems Weaken EPA Enforcement Activities (GAO/PEMD-93-24) Hazardous Waste: Impediments Delay Timely Closing and Cleanup of Facilities (GAO/RCED-92-84) Hazardous Waste: Limited Progress in Closing and Cleaning Up Contaminated Facilities (GAO/RCED-91-79) Hazardous Waste: Management Problems Continue at Overseas Military Bases (GAO/NSIAD-91-231) Hazardous Waste: Much Work Remains to Accelerate Facility Cleanups (GAO/RCED-93-15) Hazardous Waste: New Approach Needed to Manage the Resource Conservation and Recovery Act (GAO/RCED-88-115) Hazardous Waste: U.S. and Mexican Management of Hazardous Waste From Maquiladoras Hampered by Lack of Information (GAO/T-RCED-92-22) Improvements Needed in the Environmental Protection Agency’s Testing Programs for Radon Measurement Companies (GAO/T-RCED-90-54) Indoor Air Pollution: Federal Efforts Are Not Effectively Addressing a Growing Problem (GAO/RCED-92-8) International Environment: Strengthening the Implementation of Environmental Agreements (GAO/RCED-92-188) Lawn Care Pesticides: Reregistration Falls Further Behind and Exposure Effects Are Uncertain (GAO/RCED-93-80) Medical Waste Regulation: Health and Environmental Risks Need to Be Fully Assessed (GAO/RCED-90-86) Natural Resources Restoration: Use of Exxon Valdez Oil Spill Settlement Funds (GAO/RCED-93-206BR) Nonagricultural Pesticides: Risks and Regulation (GAO/RCED-86-97) Nonhazardous Waste: Environmental Safeguards for Industrial Facilities Need to Be Developed (GAO/RCED-90-92) Nuclear Energy: Environmental Issues at DOE’s Nuclear Defense Facilities (GAO/RCED-86-192) Nuclear Health and Safety: More Can Be Done to Better Control Environmental Restoration Costs (GAO/RCED-92-71) Nuclear Waste: Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall (GAO/RCED-90-65) Nuclear Waste: Development of Casks for Transporting Spent Fuel Needs Modification (GAO/RCED-92-56) Nuclear Waste: DOE’s Repository Site Investigations, a Long and Difficult Task (GAO/RCED-92-73) Nuclear Waste: Improvements Needed in Monitoring Contaminants in Hanford Soils (GAO/RCED-92-149) Nuclear Waste: Operation of Monitored Retrievable Storage Facility Is Unlikely by 1998 (GAO/RCED-91-194) Nuclear Waste: Status of Actions to Improve DOE User-Fee Assessments (GAO/RCED-92-165) Occupational Safety and Health: Penalties for Violations Are Well Below Maximum Allowable Penalties (GAO/HRD-92-48) Ozone-Depleting Chemicals: Increased Priority Needed If DOD Is to Eliminate Their Use (GAO/NSIAD-92-21) Pesticide Monitoring: FDA’s Automated Import Information System Is Incomplete (GAO/RCED-92-42) Pesticides: A Comparative Study of Industrialized Nations’ Regulatory Systems (GAO/PEMD-93-17) Pesticides: Adulterated Imported Foods Are Reaching U.S. Grocery Shelves (GAO/RCED-92-205) Pesticides: Better Data Can Improve the Usefulness of EPA’s Benefit Assessments (GAO/RCED-92-32) Pesticides: Comparison of U.S. and Mexican Pesticide Standards and Enforcement (GAO/RCED-92-140) Pesticides: EPA Could Do More to Minimize Groundwater Contamination (GAO/RCED-91-75) Pesticides: EPA’s Formidable Task To Assess and Regulate Their Risks (GAO/RCED-86-125) Pesticides: Export of Unregistered Pesticides Is Not Adequately Monitored by EPA (GAO/RCED-89-128) Pesticides: Food Consumption Data of Little Value to Estimate Some Exposures (GAO/RCED-91-125) Pesticides: Information Systems Improvements Essential for EPA’s Reregistration Efforts (GAO/IMTEC-93-5) Pesticides: Issues Concerning Pesticides Used in the Great Lakes Watershed (GAO/RCED-93-128) Pesticides: Need To Enhance FDA’s Ability To Protect the Public From Illegal Residues (GAO/RCED-87-7) Pesticides: Pesticide Reregistration May Not Be Completed Until 2006 (GAO/RCED-93-94) Pollution From Pipelines: DOT Lacks Prevention Program and Information for Timely Response (GAO/RCED-91-60) Radioactive Waste: EPA Standards Delayed by Low Priority and Coordination Problems (GAO/RCED-93-126) Radon Testing in Federal Buildings Needs Improvement and HUD’s Radon Policy Needs Strengthening (GAO/T-RCED-91-48) Solid Waste: Federal Program to Buy Products With Recovered Materials Proceeds Slowly (GAO/RCED-93-58) Superfund: Backlog of Unevaluated Federal Facilities Slows Cleanup Efforts (GAO/RCED-93-119) Superfund: Cleanups Nearing Completion Indicate Future Challenges (GAO/RCED-93-188) Superfund: EPA Action Could Have Minimized Program Management Costs (GAO/RCED-93-136) Superfund: EPA Cost Estimates Are Not Reliable or Timely (GAO/AFMD-92-40) Superfund: EPA Needs to Better Focus Cleanup Technology Development (GAO/T-RCED-92-92) Superfund: More Settlement Authority and EPA Controls Could Increase Cost Recovery (GAO/RCED-91-144) Superfund: Problems With the Completeness and Consistency of Site Cleanup Plans (GAO/RCED-92-138) Sustainable Agriculture: Program Management Accomplishments and Opportunities (GAO/RCED-92-233) Toxic Chemicals: EPA’s Toxic Release Inventory Is Useful but Can Be Improved (GAO/RCED-91-121) Toxic Substances: EPA’s Chemical Testing Program Has Not Resolved Safety Concerns (GAO/RCED-91-136) Water Pollution: Pollutant Trading Could Reduce Compliance Costs If Uncertainties Are Resolved (GAO/RCED-92-153) Water Pollution: Serious Problems Confront Emerging Municipal Sludge Management Program (GAO/RCED-90-57) Water Pollution: State Revolving Funds Insufficient to Meet Wastewater Treatment Needs (GAO/RCED-92-35) Water Pollution: Stronger Efforts Needed by EPA to Control Toxic Water Pollution (GAO/RCED-91-154) Workplace Accommodation: EPA’s Alternative Workspace Process Requires Greater Managerial Oversight (GAO/GGD-92-53) With the third largest civilian agency budget in the federal government, the U.S. Department of Agriculture (USDA) affects the lives of all Americans and millions of people around the world. USDA oversees a food and agriculture sector of major importance to the nation’s economy, accounting for 17 percent of the gross national product, 20 million jobs, and 10 percent of export dollars. To carry out its missions in 1992, USDA spent about $60 billion. USDA controlled assets of about $140 billion and employed or paid the salaries of about 124,000 full-time staff in about 15,000 locations worldwide. In 1993, congressional committees made extensive use of our work and, on the basis of our recommendations, USDA has made a number of program changes resulting in more effective use of federal food and agriculture funds. One of our major efforts in 1993 was providing information and support for ongoing congressional and administration efforts to reinvent government. As a result of our management reviews of USDA, and subsequent followup, Senate and House committees held hearings on streamlining USDA and its field structure. Our work contributed to helping the Clinton administration frame the debate for reforming, streamlining, and reinventing USDA and, more specifically, to the Secretary’s proposals to create a single farm service agency and significantly reduce the field office structure. Similarly, it formed the basis of several congressional initiatives toward this same end. Our analyses of farm program flexibility provisions adopted in the 1990 farm bill contributed to a $1 billion annual savings. Analysis of the Farmers Home Administration’s (FmHA) farm loan programs warned the Congress that billions of federal dollars were at risk if current lending practices continued. Analyses of the crop insurance and disaster assistance programs contributed to congressional debate and proposed reform legislation. Analyses of milk-pricing mechanisms, livestock markets, and safety and quality of agriculture products and food resulted in hearings, proposed legislation, and agency actions to improve the overall fairness of the markets and attention to the need to reform the fragmented food inspection system. Our analyses of milk, imported cheese, bottled water, imported Canadian meat, animal drugs, and salmonella in eggs resulted in program improvements. The Food and Drug Administration began a training program for reviewers of data used to support regulatory decisions. USDA revised its inspection of imported Canadian meat. Our comprehensive evaluation of the federal food safety inspection system found that it was inconsistent, inefficient, and ineffective. We advised the Congress that after nearly a century of piecemeal fixes, a major restructuring of the fragmented inspection system—to a uniform, risk-based system—was needed. The USDA of 1993 is largely the product of 1930s programs, structures, and management systems. It is an organizational behemoth of more than 110,000 employees that is ill suited to confronting today’s issues. A fundamental reevaluation and wholesale revamping is in order. The starting point in this reinvention process is consensus agreement on USDA’s primary mission. In a series of reports on the management of USDA, we noted structural problems that, if addressed, could lead to greater efficiency, effectiveness, and cost savings. A key issue is the independence of the major component agencies of USDA, each established in response to a separate legislative mandate. Because these agencies have historically established their own information, financial, and human resources management systems to address legislative mandates, efficiencies have not been achieved departmentwide. With these systems, the Department is data rich, but information poor, making it difficult for the Secretary to make informed decisions. Furthermore, weaknesses in financial management systems and internal and accounting controls substantially increase the risk of mismanagement, fraud, waste, and abuse in Department programs. Because each component agency has its own systems, USDA has difficulty in dealing with issues that cut across its traditional, production-based organizational structure. For example, nine USDA agencies and offices have responsibilities for biotechnology issues. Numerous conflicts among these agencies have blocked development of a single strategy in this important area. Nowhere is the struggle to get a handle on the structural and management systems problems more apparent than in the operations of USDA’s farm service agencies’ field offices. Multiple agencies operate independent field offices all over the country, often right next door to each other. Weaknesses in information systems—different and incompatible hardware, software, telecommunications, and data bases—are important obstacles to any reform of the farm service agencies. We made a number of recommendations specific to departmental structures and strategies that would result in needed improvement. We also recommended that farm agencies’ field structure be given a major overhaul; management of cross-cutting agricultural issues be improved; management systems—financial, informational, and human resource—be strengthened; and USDA be revitalized to meet new challenges and increased responsibilities in nutrition, international trade, and resource conservation issues. Recent progress toward streamlining USDA field structure is very encouraging, and cost savings should be significant. In September 1993, Agriculture Secretary Mike Espy announced a plan to close some farm agency offices and consolidate farm agencies into a single farm agency. He also announced a plan to streamline headquarters. Further details of the Department’s reorganization plan are expected. The Under Secretary of Agriculture has said that the reorganization will take a few years. But the fundamental problem remains: How to revitalize USDA so that it is efficient and effective into the 21st century. To achieve this goal, a thorough review of USDA’s mission and a corresponding restructuring is now necessary. The Congress and the administration need to develop a consensus on USDA’s mission. Once developed, the mission statement must be continually reassessed and updated to address changing conditions, and the Secretary will need to develop measurable departmental goals. (GAO/IMTEC-93-20, GAO/RCED-91-49, GAO/RCED-91-41, and GAO/RCED-91-9) We believe that USDA commodity programs need to move toward a global market orientation. Our work focused on revamping the agricultural farm, export, and market development programs to help make them more competitive in the global marketplace. Our analyses of farm program flexibility provisions adopted in the 1990 farm bill contributed to $900 million savings in 1992 and $1.25 billion a year in fiscal years 1993-95. The Congress may wish to re-evaluate USDA’s support programs in several areas because current subsidies provide incentives to serve relatively rigid government objectives rather than leverage flexible sector development of new products, services, and markets. We have reviewed the sugar, peanuts, wool and mohair, honey, and dairy programs and recommended that they be reviewed for possible policy changes. Regarding the sugar program, we recommended that the Congress consider legislation that would move the sugar industry toward a more open market. As part of this transition, the market price for sugar should be lowered. The Congress should gradually lower the loan rate for sugar and direct USDA to adjust import quotas accordingly. On the peanut program, economic studies and our analysis show that the peanut program adds $314 million to $513 million each year to consumers’ costs of buying peanuts. At the same time, USDA spends tens of millions of dollars each year to run the peanut program, make mandatory payments to producers, and cover the high cost of peanut products it buys under various food assistance programs. Finally, the program, by boosting the volume of U.S. peanuts available for export, may be lowering prices paid for peanuts abroad. (GAO/RCED-93-84 and GAO/RCED-93-18) FmHA is not adequately protecting the multibillion-dollar federal investment in farmer loan programs. In April 1992, we reported that, as of September 1990, more than two-thirds of the outstanding $19.5 billion direct loan portfolio was at risk because it was held by delinquent borrowers or borrowers whose debts had been restructured in response to past repayment difficulties. This high level of risk existed even though FmHA had forgiven $4.5 billion in direct loan debt during 1989 and 1990. By June 1992, FmHA forgave an additional $3.1 billion in direct loan obligations. As these large loan losses have accumulated, FmHA has evolved into a continuous source of subsidized credit for nearly half of its borrowers. Ironically, the financial condition of some of these borrowers has actually deteriorated because of repeated loan servicing, which has increased their debt and reduced their equity. A number of factors have contributed to FmHA’s problems. Although some of these factors—such as the decline of the agricultural economy—are beyond the immediate control of either the Congress or FmHA, two are not. First, lending officials in FmHA’s field offices often fail to follow the agency’s own standards for making loans, servicing loans, and managing property. For example, FmHA requires that a borrower’s existing debts be verified during the loan approval process. But, during the first three quarters of fiscal year 1992, FmHA internal reviews showed that debts had not been verified for 20 percent of the loans sampled. Second, certain FmHA or congressionally authorized loan-making, loan-servicing, and property management policies themselves increase the agency’s vulnerability to loss. More specifically: Borrowers who have defaulted on past loans are free to obtain new loans. Under a congressionally directed policy, borrowers may obtain new FmHA direct loans for operating expenses without demonstrating the ability to repay their existing debt. Private lenders may use guaranteed loans to refinance existing customers’ debts, thereby shifting to the federal government most of the risk of their loans to financially stressed borrowers. The servicing policies of the Agricultural Credit Act of 1987 run counter to principles of sound financial management. The act allows debt write-down for borrowers whose loans are restructured and debt writeoff for those whose loans do not qualify for restructuring. These policies have cost taxpayers billions of dollars over the last several years and provide incentives for farmers to default intentionally on their loans in order to qualify for debt reduction. Legislation requiring FmHA to sell acquired properties at fixed prices, rather than to the highest bidder, and to a selected group of potential purchasers, often the previous owners, has limited FmHA’s return on these properties and increased its holding costs. We have made numerous recommendations to the Congress and the Secretary of Agriculture that are aimed at (1) improving compliance with loan standards and (2) strengthening policies and program design for direct loans, guaranteed loans, and acquired farm property. More broadly, we have called for the Congress to clarify FmHA’s role and mission, noting that FmHA’s attempts to operate simultaneously as a fiscally prudent lender and as a temporary assistance agency have not worked. (GAO/RCED-93-28 and GAO/RCED-92-86) The federal system to ensure the safety and the quality of the nation’s food—at an annual cost of $1 billion a year—is inefficient and outdated and does not adequately protect the consumer against food-borne illness. The food safety inspection system suffers from overlapping and duplicative inspections, poor coordination, inefficient allocation of resources, and outdated inspection procedures. As many as 12 different agencies administering over 35 different laws oversee food safety inspection. More specifically: Food establishments may be inspected by more than one federal agency because they process foods that are regulated under different federal laws or because they participate in voluntary inspection or grading service programs. Agencies do not always notify one another when they identify problems or, once a referral is made, do not always promptly investigate identified problems. As a result, unsanitary plants continue operations and firms market contaminated foods. Federal agencies responsible for food safety and quality inspections could use their resources more efficiently by basing inspection frequencies on risk. The federal meat and poultry inspection system follows procedures no longer appropriate for today’s food safety risks. The system relies on inspectors’ sense of sight, smell, and touch to ensure wholesome product. But, inspectors cannot see, smell, or feel microbial pathogens, which are widely regarded as the principal risk associated with meat and poultry. We have not estimated the cost savings that would result from a revamped food safety system and the elimination of inefficient inspection practices. Instead, we have emphasized the need to modernize inspection procedures and tie resource allocation to health risks. We believe that improved effectiveness, efficiency, and uniformity could be realized by creating a single food safety agency to administer a uniform set of food safety laws based on the principle that the objective of an inspection system is to protect the public from the most serious health risks associated with food-borne hazards. (GAO/T-RCED-93-22, GAO/RCED-92-209, and GAO/RCED-92-152) Billions of federal dollars are spent every year for rural America, but these funds are not addressing the problems of rural areas in a coherent, responsive manner. In a report on rural development, we noted several basic problems in the federal approach to rural America. First, many of the rural federal assistance programs target agriculture, which is no longer the principal economic base of most rural communities. Today, rural America depends on a broad mix of manufacturing and service industries, as well as agriculture. In 1990, only about 22 percent of the nation’s approximately 2,400 rural counties relied on agriculture as an economic base and only about 6 percent of the rural population lived on farms. Therefore, by focusing on agriculture, the federal government may be missing opportunities for rural development in areas with potentially much greater payoff. Second, many federal programs that could benefit rural communities do not because they require coordination of expertise and resources, that are often not available in rural communities. A given problem—for example, in obtaining water and sewer funds for an industrial park—may involve multiple agencies, such as the Economic Development Administration, the Department of Housing and Urban Development, and FmHA. Each agency has its own forms and regulations. While urban areas may respond to this complexity of federal programs by dedicating human resources to each agency, rural communities do not have that luxury. Third, federal programs do not adequately distinguish among communities of different population densities. For example, many federal programs define small communities as those with fewer than 50,000 people—that is, communities of 49,000 are considered identical to those of 1,000 for program benefits and/or mandates. The needs and the administrative capabilities of a community of 49,000, however, may be vastly different from those of a community of 1,000. And, finally, federal programs focus on process rather than effectiveness—they tend to measure effectiveness by numbers served or dollars spent rather than by achievement of program goals. This hinders rural areas in using resources efficiently. (GAO/RCED-92-197) Agriculture Payments: Effectiveness of Efforts to Reduce Farm Payments Has Been Limited (GAO/RCED-92-2) Biotechnology: Managing the Risks of Field Testing Genetically Engineered Organisms (GAO/RCED-88-27) Commodity Programs: Should Farmers Grow Income-Supported Crops on Federal Land? (GAO/RCED-92-54) Crop Insurance Program: Nationwide Computer Acquisition Is Inappropriate at This Time (GAO/IMTEC-93-20) Dairy Cooperatives: Role and Effects of the Capper-Volstead Antitrust Exemption (GAO/RCED-90-186) Data Collection: Opportunities to Improve USDA’s Farm Costs and Returns Survey (GAO/RCED-92-175) Early Intervention: Federal Investments Like WIC Can Produce Savings (GAO/HRD-92-18) Farmers Home Administration: Billions of Dollars in Farm Loans Are at Risk (GAO/RCED-92-86) Farmers Home Administration: Final Resolution of Farm Loan or Servicing Appeals (GAO/RCED-93-28) FDA Regulations: Sustained Management Attention Needed to Improve Timely Issuance (GAO/HRD-92-35) Federal Dairy Programs: Insights Into Their Past Provide Perspectives on Their Future (GAO/RCED-90-88) Financial Audit: Forest Service’s Financial Statements for Fiscal Year 1988 (GAO/AFMD-91-18) Food Safety and Quality: FDA Can Improve Monitoring of Imported Cheese (GAO/RCED-92-210) Food Safety and Quality: FDA Needs Stronger Controls Over the Approval Process for New Animal Drugs (GAO/RCED-92-63) Food Safety and Quality: FDA Strategy Needed to Address Animal Drug Residues in Milk (GAO/RCED-92-209) Food Safety and Quality: Innovative Strategies May Be Needed to Regulate New Food Technologies (GAO/RCED-93-142) Food Safety and Quality: Limitations of FDA’s Bottled Water Survey and Options for Better Oversight (GAO/RCED-92-87) Food Safety and Quality: Salmonella Control Efforts Show Need for More Coordination (GAO/RCED-92-69) Food Safety and Quality: Stronger FDA Standards and Oversight Needed for Bottled Water (GAO/RCED-91-67) Food Safety and Quality: Uniform, Risk-based Inspection System Needed to Ensure Safe Food Supply (GAO/RCED-92-152) Food Safety and Quality: USDA Improves Inspection Program for Canadian Meat, but Some Concerns Remain (GAO/RCED-92-250) Food Safety: Building a Scientific, Risk-Based Meat and Poultry Inspection System (GAO/T-RCED-93-22) Foreign Farm Workers in U.S.: Department of Labor Action Needed to Protect Florida Sugar Cane Workers (GAO/HRD-92-95) Forest Service Needs to Improve Efforts to Protect the Government’s Financial Interests and Reduce Below-Cost Timber Sales (GAO/T-RCED-91-42) Freedom of Information: FDA’s Program and Regulations Need Improvement (GAO/HRD-92-2) Guidelines Needed for EPA’s Tolerance Assessments of Pesticide Residues in Food (GAO/T-RCED-89-35) International Trade: Agricultural Trade Offices’ Role in Promoting U.S. Exports Is Unclear (GAO/NSIAD-92-65) Milk Pricing: New Method for Setting Farm Milk Prices Needs to Be Developed (GAO/RCED-90-8) Peanut Program: Changes Are Needed to Make the Program Responsive to Market Forces (GAO/RCED-93-18) Pesticides: Adulterated Imported Foods Are Reaching U.S. Grocery Shelves (GAO/RCED-92-205) Pesticides: Comparison of U.S. and Mexican Pesticide Standards and Enforcement (GAO/RCED-92-140) Pesticides: Food Consumption Data of Little Value to Estimate Some Exposures (GAO/RCED-91-125) Rangeland Management: BLM Efforts to Prevent Unauthorized Livestock Grazing Need Strengthening (GAO/RCED-91-17) Rural Development Administration: Patterns of Use in the Business and Industry Loan Guarantee Program (GAO/RCED-92-197) Social Security: Need for Better Coordination of Food Stamp Services for Social Security Clients (GAO/HRD-92-92) Sugar Program: Changing Domestic and International Conditions Require Program Changes (GAO/RCED-93-84) Sustainable Agriculture: Program Management Accomplishments and Opportunities (GAO/RCED-92-233) Truck Transport: Little Is Known About Hauling Garbage and Food in the Same Vehicles (GAO/RCED-90-161) U.S. Department of Agriculture: Farm Agencies’ Field Structure Needs Major Overhaul (GAO/RCED-91-9) U.S. Department of Agriculture: Improving Management of Cross-Cutting Agricultural Issues (GAO/RCED-91-41) U.S. Department of Agriculture: Interim Report on Ways to Enhance Management (GAO/RCED-90-19) U.S. Department of Agriculture: Need for Improved Workforce Planning (GAO/RCED-90-97) U.S. Department of Agriculture: Strengthening Management Systems to Support Secretarial Goals (GAO/RCED-91-49) Federal housing and community development efforts focus on two related goals: (1) providing safe, affordable, and decent housing to all Americans and (2) supporting and revitalizing economically depressed communities. While our nation is generally considered to have the best-housed people in the world, a host of economic and social problems have thus far denied full attainment of our national housing goals. These problems are reflected in the widening gap between the demand for and the supply of affordable low-income housing; declining rates of homeownership, particularly among younger families; and continued problems with homelessness. Contributing to these problems is the spread of economically distressed communities and their attendant high unemployment rates and low family incomes. To deal with these conditions, the federal government has established a broad array of programs, in several federal agencies, primarily the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) (through its housing and homelessness programs), the Department of Agriculture (through the Farmers Home Administration [FmHA]), the Department of Commerce (through the Economic Development Administration and the Minority Business Development Agency), the Small Business Administration (SBA), and the Federal Emergency Management Agency (FEMA) (through its disaster assistance and homelessness programs). Together, these agencies had budget authority for over $30 billion in fiscal year 1993. We reviewed the effectiveness of federal efforts to help low- and moderate-income individuals and families purchase homes through direct, insured, and guaranteed loans. Key agencies are the Federal Housing Administration (FHA) and the Government National Mortgage Association (GNMA)—both part of HUD, VA, and FmHA. We testified on FHA’s single-family mortgage insurance fund. We found that the fund was not actuarially sound as of September 1991 and probably did not have adequate capital reserves as of October 1992, although both were required by law. We also found, however, that the fund’s actuarial position appeared to be improving. In the multifamily area, we testified on impediments to disposition of properties owned by HUD. HUD owned about 27,000 units in 1992 and had initiated foreclosure on another 42,000 units. We discussed the reasons for this growing inventory and disclosed that the federal government’s costs were the same for holding the inventory or selling it. We concluded that the current situation resulted in HUD’s being a landlord for a huge inventory of properties, a role it was never intended to play nor adequately staffed to fulfill. Also, we reviewed VA’s Home Loan Guaranty Program, under which it partially guarantees home loans made to veterans by private sector mortgage lenders. Specifically, we estimated the costs, under different economic scenarios, to the federal government of guaranteeing VA’s home mortgage loans and compared our estimates with the administration’s estimates. We concluded that the costs to the federal government for fiscal years 1992 and 1993 would probably be about $300 million lower than the administration estimated. Consequently, program costs are overstated; VA received more in appropriations than it needs to cover these costs; and the federal budget deficit for those years has been increased unnecessarily, although federal borrowing has not been affected. In addition, we reviewed certain activities of GNMA, which is a secondary mortgage market organization that guarantees securities issued by its approved mortgage originators and backed by pools of mortgage loans insured by HUD’s FHA or guaranteed by VA. We provided information on how GNMA has evolved to accomplish its mission, identified recent management problems experienced by GNMA in overseeing its issuers, examined GNMA’s response to these problems, and recommended that GNMA be granted greater staffing flexibility to manage its growing workload and respond to changing markets. Finally, we reported on weaknesses, and recommended improvements, in efforts by HUD, VA, and FmHA to protect children from the potential hazards of lead-based paint poisoning when they sell single-family homes to the public. (The agencies typically acquire such homes when borrowers are unable to repay home mortgages that an agency insured, guaranteed, or provided.) In response to our earlier report on ways VA could reduce foreclosure costs in its guaranteed home loan program, VA developed and tested procedures to determine the most cost-effective way of selling properties. These procedures were expected to be implemented nationwide in late 1993. Also, as a result of our earlier report on fraud in the federal multifamily housing mortgage program in New York, the U.S. Attorney has secured four indictments. One real estate developer charged in the case agreed to plead guilty to the charges and pay at least $500,000 in restitution. Our work on low-income housing covered such issues as the demographic characteristics of certain housing assistance recipients, funding problems facing one program, efforts to integrate housing assistance with supportive services, and alternative methods of developing public housing. It focused primarily on HUD programs but also dealt with a FmHA program and certain other agencies’ efforts. We continued our work on HUD’s section 8 rental assistance program, which provides housing subsidies that allow about 2.8 million low-income households to obtain decent and affordable housing from private owners. HUD provides these subsidies through over 40,000 contracts with state and local agencies and private owners. We provided information on the demographic characteristics of elderly and nonelderly assistance recipients, the quality of the housing units rented by elderly recipients, and the proportion of income that elderly and nonelderly recipients pay for rent. We also analyzed the estimated budget authority that will be needed to renew expiring section 8 contracts for the next 5 years and ways to even out the growth in budget authority to renew contracts. We also continued our work on self-sufficiency by reporting on HUD’s Family Self-Sufficiency Program; this program was established to promote the development of strategies to coordinate housing assistance with public and private supportive services in order to enable lower-income families to achieve economic independence and self-sufficiency. We discussed the program’s status and actions by HUD to coordinate its efforts with other federal agencies. Moreover, we analyzed and testified on two programs, controlled by public housing agencies, that are designed to develop housing for low-income households—the Low-Income Housing Tax Credit Program, which is supported by federal tax expenditures, and the Public Housing Development Program, which is supported by federal grants. We provided information on the characteristics of the tenants served and the projects developed, analyzed costs to the federal government, and described public housing authorities’ experiences with both programs. In addition, we reviewed the rural single-family housing program administered by FmHA, through which home loans are provided to rural residents who cannot afford to become homeowners through private financing. We found that rural counties in and around metropolitan areas received a disproportionately high share of program funds and, conversely, that remote rural areas received a disproportionately low share of program funds. Finally, we reported on the status of the 19 programs authorized by the McKinney Act to help the homeless. These programs are implemented by HUD, VA, FEMA, and other federal agencies. As a result of our earlier work on the difficulties of housing persons with mental disabilities with the elderly, the Congress—in the Housing and Community Development Act of 1992—authorized public housing agencies to provide public housing designated for only the elderly. In the same act, the Congress authorized FHA to develop and conduct risk-sharing credit enhancement demonstration programs and authorized the creation of a task force to begin developing a national data base on the performance of multifamily housing loans. Both actions are consistent with, and largely attributable to, our testimonies of these subjects. In response to our work on the need for better guidance on FmHA rural rental housing, FmHA issued regulations in July 1993 and instructions in August 1993 to correct the problems we had identified. Moreover, in response to our testimony on excessive profits and program abuses in FmHA’s rural rental housing program, FmHA increased, from 3 percent to 5 percent, the amount of equity a developer must commit to financing a project. This will effectively increase, by at least $10 million, the funding available to finance such rural housing units. Finally, in response to our earlier report on single-room occupancy projects for the homeless, HUD issued regulations in 1993 that should help ensure that such projects are financially feasible. These regulations also eliminate the required use of public housing agency waiting lists for selecting residents. Our work on community development considered three types of federal help to rebuild and strengthen communities: (1) financial and other assistance to small business; (2) economic development; and (3) disaster assistance, to aid communities and residents devastated by natural disasters. In the small business area, we reviewed three SBA efforts. We found that its minority business development program continued to be troubled. (We had previously reported in January 1992 on this program, which is designed to assist small businesses that are owned and controlled by socially and economically disadvantaged persons to develop into viable competitors in the commercial marketplace.) Also, we reported on the financial health of small business investment companies, which help small businesses by providing financing to start, maintain, and expand operations. We focused primarily on why these investment companies experienced substantial losses and had been liquidated by SBA. Finally, we examined a provision that authorized nonprofit agencies employing persons with disabilities to compete for small business set-aside contracts awarded by federal agencies. We found that the nonprofit agencies seldom sought such contracts, receiving less than 1 percent of all federal contracts set aside for small businesses during the period reviewed and recommended that the Congress change the law to remove impediments to program participation. In the economic development area, we examined the benefits provided by small-issue industrial development bonds. These bonds, issued by state and local government authorities, are intended to help finance the creation and the expansion of manufacturing facilities. The federal government forgoes tax revenue of about $2 billion a year because the interest on such bonds is tax exempt. We concluded that, while these bonds were being used (as required) to finance manufacturing projects, it is questionable whether they achieved other public benefits attributed to them, such as creating jobs, assisting startup companies, and providing aid to economically distressed areas. In the aftermath of Hurricane Andrew, which leveled much of south Florida in August 1992, we reported and testified on improvements needed in the nation’s response to catastrophic disasters. The response to Hurricane Andrew marked the first use of the Federal Response Plan, a cooperative agreement signed by FEMA, 25 other federal agencies, and the American Red Cross. But, the response to Hurricane Andrew revealed inadequacies in the plan. Separately, we reported on actions needed to prevent recurring funding shortfalls in the disaster relief fund, which finances disaster responses. In response to our 1991 and 1993 reports on disaster assistance, FEMA has taken a number of actions. In response to the former report, FEMA and HUD developed procedures for providing rental housing assistance vouchers to disaster victims. In response to the latter report, FEMA established a Damage Assessment Task Force to identify the capabilities needed to perform assessments and to develop a process for generating assistance requirements. FEMA also issued interim guidelines for assessing damage caused by disaster, directing that assessments be made promptly, and the level and type of assistance needed be specified. Moreover, FEMA enhanced states’ flexibility in using FEMA grant funds and established a training and exercise work group to develop new training strategies and exercise programs. Because of the questions that surround whether industrial development bonds are achieving the public benefits attributed to them and in view of the tax revenue foregone, we suggested that the Congress either not reauthorize the provision or, as part of a reauthorization, specify requirements to better direct these bonds toward achieving public benefits that would not otherwise result. (GAO/RCED-93-106) The federal response to Hurricane Andrew revealed weaknesses in the multiagency Federal Response Plan. Improvements are needed regarding the explicit authority provided to federal agencies before areas are declared disaster areas; FEMA’s efforts to prepare state and local governments for disasters; and the reliance placed on the Department of Defense to provide food, shelter, and other items on a massive scale. (GAO/T-RCED-93-4, GAO/T-RCED-93-13, GAO/T-RCED-93-20, and GAO/RCED-93-186) Lead poisoning is one of the most common health problems for our nation’s children, with potentially significant effects on intelligence and behavior. Lead-based paint is the most widespread source of exposure to lead for children. Although lead-based paint was not permitted to be used in residential housing after 1978, such paint is still found in many units built earlier. Improvements are needed in federal efforts to protect children in two different circumstances. First, when HUD, VA, and FmHA sell single-family homes to the public (totaling about 100,00 a year) they need to do a better job of identifying and treating lead-based paint hazards. (GAO/RCED-93-38) Second, about 400,000 children live in federally assisted public housing, and about 60 percent of all public housing units were built before 1978 and may be occupied by families with children. HUD needs to provide greater protection for these children. Also, we suggested that the Congress establish a deadline for HUD and public housing agencies to abate certain lead-paint hazards. (GAO/RCED-93-138) For its Home Loan Guaranty Program, VA (like other agencies that operate federal credit programs) estimates the subsidy cost associated with the portfolio of new loans it guarantees each year. To do so, it uses an economic model developed by the Office of Management and Budget (OMB). We found that the costs to the federal government will probably be about $300 million lower than the administration estimated and that VA, therefore, had unnecessarily increased the budget deficit. We recommended that VA and OMB work together to improve their economic model and submit revised subsidy cost estimates. (GAO/RCED-93-173) Agency for International Development: The Minority Shipping Program Is Constrained by Program Requirements (GAO/NSIAD-92-304) Disaster Assistance: Federal, State, and Local Responses to Natural Disasters Need Improvement (GAO/RCED-91-43) Disaster Management: Recent Disasters Demonstrate the Need to Improve the Nation’s Response Strategy (GAO/T-RCED-93-4) Disaster Management: Recent Disasters Demonstrate the Need to Improve the Nation’s Response Strategy (GAO/T-RCED-93-20) Disaster Relief Fund: Actions Still Needed to Prevent Recurrence of Funding Shortfall (GAO/RCED-93-60) Export Promotion: Problems in the Small Business Administration’s Programs (GAO/GGD-92-77) Farmers Home Administration: Billions of Dollars in Farm Loans Are at Risk (GAO/RCED-92-86) Government National Mortgage Association: Greater Staffing Flexibility Needed to Improve Management (GAO/RCED-93-100) Homelessness: Access to McKinney Act Programs Improved but Better Oversight Needed (GAO/RCED-91-29) Homelessness: Action Needed to Make Federal Surplus Property Program More Effective (GAO/RCED-91-33) Homelessness: Federal Personal Property Donations Provide Limited Benefit to the Homeless (GAO/RCED-91-108) Homelessness: Single Room Occupancy Program Achieves Goals, but HUD Can Increase Impact (GAO/RCED-92-215) Homeownership: Appropriations Made to Finance VA’s Housing Program May Be Overestimated (GAO/RCED-93-173) Housing Programs: VA Can Reduce Its Guaranteed Home Loan Foreclosure Costs (GAO/RCED-89-58) Industrial Development Bonds: Achievement of Public Benefits Is Unclear (GAO/RCED-93-106) Lead-Based Paint Poisoning: Children in Public Housing Are Not Adequately Protected (GAO/RCED-93-138) Lead-Based Paint Poisoning: Children Not Fully Protected When Federal Agencies Sell Homes to Public (GAO/RCED-93-38) Public and Assisted Housing: Linking Housing and Supportive Services to Promote Self-Sufficiency (GAO/RCED-92-142BR) Public Housing: Housing Persons With Mental Disabilities With the Elderly (GAO/RCED-92-81) Radon Testing in Federal Buildings Needs Improvement and HUD’s Radon Policy Needs Strengthening (GAO/T-RCED-91-48) Rental Housing: Housing Vouchers Cost More Than Certificates but Offer Added Benefits (GAO/RCED-89-20) Rural Development Administration: Patterns of Use in the Business and Industry Loan Guarantee Program (GAO/RCED-92-197) Small Business: Problems Continue With SBA’s Minority Business Development Program (GAO/RCED-93-145) Technology Transfer: Federal Efforts to Enhance the Competitiveness of Small Manufacturers (GAO/RCED-92-30) Urban Poor: Tenant Income Misreporting Deprives Other Families of HUD-Subsidized Housing (GAO/HRD-92-60) Natural resources on federal lands are second only to tax receipts in generating revenues for the federal government, totaling almost $7 billion in fiscal year 1992. But, fiscal year 1993 budget authorities for the three agencies primarily responsible for managing and protecting these resources—the Department of the Interior, the Department of Agriculture’s Forest Service, and the U.S. Army Corps of Engineers—were more than double the revenues generated the year before—about $16.6 billion. Each year, the federal government acquires additional lands to conserve natural resources and expands the infrastructure of facilities constructed to provide access to or make use of the natural resources on federal lands. Yet, our work over the last several years has shown that the condition of the federal lands continues to deteriorate and that the existing infrastructure on these lands—approaching $200 billion in value—is in a growing state of disrepair. At the same time, agency staff are being asked to assume increasing responsibilities and to perform more duties. As a result, existing maintenance and reconstruction standards are being compromised and tradeoffs are being made among important yet competing work priorities. The Congress and the administration now face a difficult choice. They must find new sources of funding for the agencies responsible for managing natural resources or find ways for these agencies to operate more efficiently, or they must make further cutbacks in the agencies’ services or standards for maintaining facilities and lands. In March 1989, we recommended that the Congress eliminate the law’s patenting provision allowing valuable federal lands to pass into private ownership or, should the Congress decide not to eliminate this provision, amend the law to require that the federal government obtain fair market value for the land patented. Both the authorizing committees as well as the administration are considering comprehensive mining law revision. (GAO/RCED-89-72) In our October 1989 report and our September 1991 testimony on abuses of federal water subsidies, we recommended that the Congress amend reclamation law to limit federally subsidized water to leased or owned land being operated as one farm. This provision was deleted at the last moment from the 1992 omnibus water bill and has not been reintroduced in this Congress. (GAO/RCED-90-6 and GAO/T-RCED-91-90) In April 1991 testimony, we stated that the federal government was not recovering timber sale preparation and administration expenses, resulting in below-cost timber sales, and recommended that the Forest Service do so. We also made three additional recommendations. The Forest Service is considering our recommendations in developing a below-cost policy scheduled for implementation in 1994. (GAO/T-RCED-91-42) Abandoned Mine Reclamation: Interior May Have Approved State Shifts to Noncoal Projects Prematurely (GAO/RCED-91-162) Bureau of Reclamation: Central Valley Project Cost Allocation Overdue and New Method Needed (GAO/RCED-92-74) Bureau of Reclamation: Unauthorized Recreation Facilities at Two Reclamation Projects (GAO/RCED-93-115) Coastal Barriers: Development Occurring Despite Prohibition Against Federal Assistance (GAO/RCED-92-115) Drinking Water: Widening Gap Between Needs and Available Resources Threatens Vital EPA Program (GAO/RCED-92-184) Endangered Species: Factors Associated With Delayed Listing Decisions (GAO/RCED-93-152) Federal Land Management: The Mining Law of 1872 Needs Revision (GAO/RCED-89-72) Federal Land Management: Unauthorized Activities Occurring on Hardrock Mining Claims (GAO/RCED-90-111) Federal Lands: Improvements Needed in Managing Short-Term Concessioners (GAO/RCED-93-177) Federal Timber Sales: Process for Appraising Timber Offered for Sale Needs to Be Improved (GAO/RCED-90-135) Financial Management: BIA Has Made Limited Progress in Reconciling Trust Accounts and Developing a Strategic Plan (GAO/AFMD-92-38) Forest Service: Little Assurance That Fair Market Value Fees Are Collected From Ski Areas (GAO/RCED-93-107) Forest Service Needs to Improve Efforts to Protect the Government’s Financial Interests and Reduce Below-Cost Timber Sales (GAO/T-RCED-91-42) Forest Service Timber Sales Program: Questionable Need for Contract Term Extensions and Status of Efforts to Reduce Costs (GAO/T-RCED-92-58) Hydroelectric Dams: Issues Surrounding Columbia River Basin Juvenile Fish Bypasses (GAO/RCED-90-180) Indian Programs: BIA and Indian Tribes Are Taking Action to Address Dam Safety Concerns (GAO/RCED-92-50) Mineral Resources: Federal Helium Purity Should Be Maintained (GAO/RCED-92-44) Mineral Resources: Interior’s Use of Oil and Gas Development Contracts (GAO/RCED-91-1) Mineral Resources: Meeting Federal Needs for Helium (GAO/RCED-93-1) Mineral Revenues: Progress Has Been Slow in Verifying Offshore Oil and Gas Production (GAO/RCED-90-193) National Park Service: Scope and Cost of America’s Industrial Heritage Project Need to Be Defined (GAO/RCED-93-134) Natural Gas Pipelines: Greater Use of Instrumented Inspection Technology Can Improve Safety (GAO/RCED-92-237) Natural Resources Restoration: Use of Exxon Valdez Oil Spill Settlement Funds (GAO/RCED-93-206BR) Rangeland Management: BLM Efforts to Prevent Unauthorized Livestock Grazing Need Strengthening (GAO/RCED-91-17) Rangeland Management: BLM’s Hot Desert Grazing Program Merits Reconsideration (GAO/RCED-92-12) Rangeland Management: BLM’s Range Improvement Project Data Base Is Incomplete and Inaccurate (GAO/RCED-93-92) Rangeland Management: Improvements Needed in Federal Wild Horse Program (GAO/RCED-90-110) Rangeland Management: Interior’s Monitoring Has Fallen Short of Agency Requirements (GAO/RCED-92-51) Reclamation Law: Changes to Excess Land Sales Will Generate Millions in Federal Revenues (GAO/RCED-90-100) Trans-Alaska Pipeline: Regulators Have Not Ensured That Government Requirements Are Being Met (GAO/RCED-91-89) Water Resources: Corps Lacks Authority for Water Supply Contracts (GAO/RCED-91-151) Water Resources: Federal Efforts to Monitor and Coordinate Responses to Drought (GAO/RCED-93-117) Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre Limit (GAO/RCED-90-6) Water Subsidies: Views on Proposed Reclamation Reform Legislation (GAO/T-RCED-91-90) Wetlands: The Corps of Engineers’ Administration of the Section 404 Program (GAO/RCED-88-110) Wilderness Preservation: Problems in Some National Forests Should Be Addressed (GAO/RCED-89-202) Wildlife Management: Problems Being Experienced With Current Monitoring Approach (GAO/RCED-91-123) Wildlife Protection: Enforcement of Federal Laws Could Be Strengthened (GAO/RCED-91-44) The U.S. transportation sector is being increasingly looked to as a key component in efforts to improve the economy; maintain and enhance U.S. competitiveness in the global marketplace; and serve the growing needs of businesses, industries, and the American public. Comprising diverse elements ranging from air, land, water, and mass transit to pipeline and marine safety; employing about one-tenth of America’s work force; and involving, in one way or another, about $1 in every $6 of the nation’s Gross Domestic Product, the transportation sector provides facilities and services and carries out activities that touch everyone’s life. Although the U.S. transportation system is the world’s finest, the transportation sector faces many challenges. Among these are reducing the number of transportation-related fatalities and injuries; restoring the obsolete and deteriorated portions of the transportation infrastructure; and relieving the increasingly congested aviation, highway, and waterway systems. In addition, transportation-related environmental effects and the need to strengthen U.S. transportation to remain competitive globally are of widespread concern. And demands are increasing for more and better public transit and rail service. At the same time, despite increased federal funding over the past several years for transportation activities, severe fiscal constraints require increased reliance on private resources and more efficient use of public resources to meet transportation needs. As detailed below, this issue area’s work, which has included an increasing emphasis on the transportation sector’s international and intermodal aspects, has influenced the Congress and the Department of Transportation (DOT) and its agencies to take many actions to improve transportation safety and the efficiency and the effectiveness of transportation policies and programs. Our work over the past several years relating to highway, vehicle, and driver safety has contributed significantly in guiding DOT and congressional actions that helped the nation achieve in 1992 the lowest highway death toll in 31 years. Fewer people—39,235—died in highway crashes in 1992 than in any year since 1961. This decline is especially striking because, compared with 1961, the U.S. population was 38 percent higher in 1992, more than twice as many vehicles were on the road, and Americans drove almost three times as many miles annually. Among the issues addressed in our past work that contributed to the decline in highway fatalities were minimum drinking laws for drivers under 21; need for more-stringent laws for seat belt and motorcycle helmet use and improved enforcement of these laws; need for passive restraints in light trucks and vans; and improvements in monitoring and regulating commercial vehicles, commercial drivers, and motor vehicles. Our work also influenced congressional decisions and agency actions related to railroad and pipeline safety. For example, regarding railroad hours of service, our work showed that the Congress did not need to change the law setting 12 hours as the maximum number of hours that engineers may legally work. We did, however, point out that Amtrak needed to improve its training for employees who inspect and maintain rail equipment. Regarding pipeline safety, our conclusion that the potential for pipeline incidents (that is, ruptures and leakages) in the nation’s aging natural gas pipelines could be reduced by using instrumented internal inspection technology (smart pigs) was instrumental in the enactment of legislation requiring the Secretary of Transportation to issue regulations prescribing the circumstances under which safety inspections of pipelines must be conducted with instrumented devices. In other safety-related actions based on our work, DOT expanded its regulation of hazardous materials to include truck, rail, and air shipments of about 520 marine pollutants when packaged in bulk containers, and the Federal Highway Administration (FHWA) developed an action plan to improve the timeliness of its compliance reviews for motor carriers that were previously rated less than satisfactory during safety reviews. The Federal Aviation Administration (FAA) implemented several of our recommendations for improving aviation safety. It (1) completed all required air taxi inspections during fiscal year 1992 and issued guidance to inspectors on the surveillance required for financially distressed airlines; (2) established a tracking system for individuals within or returning to the airline industry who contributed materially to emergency revocations of carrier operating certificates; (3) issued written guidance to improve administration of FAA’s airline self-audit and safety-violation-reporting programs and provided additional training to keep inspectors abreast of current policies related to the two programs; and (4) to help ensure successful deployment of the Traffic Alert/Collision Avoidance System, agreed to fully verify and validate all future significant modifications, effectively involve users and other interested parties in testing modifications, and address all users’ concerns. Regarding international aviation safety issues, we reported on FAA actions needed to harmonize domestic and international aircraft design standards. The export of transport aircraft is the largest positive influence on the U.S. balance of trade. We found that both domestic and foreign aircraft manufacturers could save millions if FAA and European authorities eliminated duplicative tests and analyses as well as differences in their requirements. Boeing and McDonnell Douglas officials confirmed our findings on the eventual cost savings that could result from standardizing aircraft design standards. In addition, we examined FAA’s initiative to ensure that foreign governments comply with international safety standards, and we reviewed FAA’s oversight of U.S.-registered aircraft operated overseas and the actions needed when such aircraft are returned to domestic operation through lease or sales agreements. In prior years, our air traffic control modernization reviews focused on systemic problems in FAA’s process of budgeting for and acquiring new systems. Over the past year, our focus shifted to reviewing mission needs analyses that FAA conducts as the starting point for modernization projects and FAA’s effectiveness in considering alternative systems to allow aircraft to conduct precision approaches to airports. In line with our recommendations, FAA’s new acquisition policies emphasize the need for a thorough mission analysis based on quantitative data as the first step in acquiring new air traffic control systems. This emphasis will reduce the risk of FAA’s acquiring new systems that are not the most appropriate and cost-effective solutions to its problems. FAA also included goals in a draft of its air traffic control modernization plan in accordance with our recommendation. As a result, the Congress, the executive branch, and users of the air traffic control system will be better able to gauge FAA’s true progress in the modernization program. To improve financial, budgetary, and management activities, DOT and its agencies took a number of actions in line with our recommendations. The Coast Guard established formal training requirements for managers of its major systems acquisition projects. It also prescribed a process for approval of units’ morale, welfare, and recreation budgets; established a deadline for budget approval; and required that a morale, welfare, and recreation user survey be administered every 3 years, with the results being used in developing and operating morale, welfare, and recreation activities. FAA restructured its Facilities and Equipment budget, which funds air traffic control modernization, to more closely link budgets for modernization projects with their actual progress, thus giving decisionmakers in the executive branch and the Congress better information for their budget decisions. In addition, for its safety indicator program, FAA convened a task force of users to help develop the indicators, established a detailed implementation plan, and developed a data validation and standardization process. In other actions, the Maritime Administration improved its management controls over repossessed vessels; the Federal Transit Administration (FTA) issued clear guidance on intercity bus activities that are eligible for rural transit grants; and DOT improved the timing and content of its written statements on GAO’s recommendations. Furthermore, DOT completed departmentwide implementation of its Departmental Accounting and Financial Information System (DAFIS), eliminating all systems that duplicated DAFIS’s fund control features. It also completed its 5-year Chief Financial Officer and Information Resource Management Plans, which document DOT’s strategy for integrating DAFIS with other systems and its strategy and objectives for addressing shortcomings with DAFIS. Also in line with our work on financial and budgetary matters, the Congress extended a 2.5-cent portion of the gasoline tax due to expire September 30, 1995, and redirected the revenues from that portion of gasoline tax from the General Fund to the Highway Trust Fund. This action will provide sufficient revenues, according to current projections, to cover the solvency problem that we had projected would occur in the Highway Trust Fund. In addition, to enable a more accurate assessment of the Highway Trust Fund’s financial status and to provide an early warning of potential shortfalls in the Fund because of lower fuel tax revenues, the Department of the Treasury commenced quarterly, rather than annual, reporting of pertinent data on the Fund. On the basis of our analyses of highway demonstration projects, the House Transportation Appropriations Subcommittee proposed rescinding about $64 million for projects that (1) were complete but for which authorizations were unspent, (2) were authorized in 1987 but for which no funds had been obligated, and (3) were a low state priority and for which only a small percentage of authorized funding had been obligated. Our analyses were also cited by the National Performance Review in discussing its recommendation that funding for all highway demonstration projects be rescinded. Our work resulted in over $200 million in budgetary and other savings in the last year or so. In direct response to our analyses of FAA’s fiscal year 1993 budget request, the House and Senate Appropriations Committees reduced funding for 19 projects under FAA’s Facilities and Equipment request by a total of $183.7 million. Many of the reductions were based on project delays that removed the need for funding in fiscal year 1993. Following our recommendations that community housing shortages be documented, that all alternatives to meeting the shortages be analyzed, and that the need for planned housing projects be reevaluated every 2 years until funding becomes available, the Coast Guard improved its procedures for acquiring housing and terminated one planned project estimated to cost $4.3 million. In addition, after we reported delays in the Coast Guard’s meeting Marine Safety Network System project milestones and remaining uncertainties that could substantially affect the system’s cost and implementation schedule, the Senate Appropriations Committee decided not to fund the agency’s 1993 budget request of $12.8 million for Marine Safety Network-related activities. After DOT stepped up its investigations as a result of our finding that airlines had not always complied with consumer protection rules on disclosure of contractual terms, nine major airlines were assessed financial penalties totaling about $389,000 for violations of consumer notice regulations. DOT expected that this action would provide a strong incentive for future compliance. On the basis of our finding that federal law did not prohibit owners from abandoning vessels in the nation’s waterways, the Congress included such a prohibition in the Abandoned Barge Act of 1992. As a result, both the risk of pollutants’ being spilled from abandoned vessels and the amount of federal funds spent for cleaning up the spills and barges should be reduced. Our review of the use of traditional transportation control measures, such as mass transit, ridesharing, and synchronization of traffic lights, to improve mobility and reduce congestion showed that, while such measures have had a modest or an incremental impact on reducing hydrocarbon and carbon monoxide emissions, further research on their effectiveness could enhance the prospects for implementing them. We also found a strong consensus that market-based measures, such as imposition of regional gasoline taxes and motor vehicle emissions fees, might be more effective in reducing automobile use but that they are economically and politically less acceptable because such measures would directly increase driving costs. Our review of developments in intermodal freight transportation and its potential for relieving the nation’s highways of some of the freight burden contributed to initiatives by the Secretary of Transportation for promoting efficient intermodal freight transportation. In addition, our work on highway-financing strategies, transit needs projections, involvement of disadvantaged business enterprises in highway contracting, and FHWA oversight of rental rates for highway construction equipment contributed to improving transportation investment decisionmaking and better oversight to ensure that federal highway dollars are spent effectively. In line with our suggestions in testimony, the House Transportation Appropriations Subcommittee developed economically based investment criteria that it used to screen proposed highway and transit demonstration projects to help ensure that the projects were good investments of federal transportation dollars. Through a series of testimonies, we also contributed to congressional deliberations on federal involvement in and support for high-speed ground transportation projects. Our work on air fares at concentrated airports, trucking undercharges, the intercity bus industry, and charter bus regulations contributed to understanding the impacts of deregulation on the nation’s transportation industries. Our testimonies on options for addressing the airline industry’s financial and competition problems contributed to the deliberations of the Congress and the National Commission to Ensure a Strong Competitive Airline Industry and to development of the Commission’s recommendations. Our work on relaxing foreign investment restrictions gave both the Congress and the Commission information on potential benefits and costs and was reflected in the Commission’s recommendations. Despite the many actions and initiatives taken by the Congress, DOT, and its agencies in response to our recommendations, some important recommendations remain open and warrant priority attention. In a report on foreign governments’ capabilities to provide adequate oversight of foreign carriers that fly into the United States, we recommended that FAA (1) require its field offices to perform comprehensive inspections of foreign carriers when FAA finds that the home governments do not comply with international standards and/or becomes aware of serious safety problems, (2) give priority to assessing the oversight capabilities of those countries that FAA determines have one or more carriers with serious safety problems, and (3) promptly notify all relevant field offices of serious safety concerns about foreign carriers. (GAO/RCED-93-42) In reporting on the extent to which the U.S. aircraft fleet meets FAA’s flammability standards for cabin interiors, we recommended that FAA determine whether to issue a regulation mandating a specific date for all aircraft in the domestic fleet to comply with the latest flammability standards. (GAO/RCED-93-37) In a report on FAA’s oversight of U.S.-registered aircraft, we recommended that FAA (1) require owners of such aircraft to notify FAA when they change from a foreign to a U.S. lessee and inspect the aircraft when they enter the United States, particularly if they are from countries that do not meet international safety standards; (2) develop a system to ensure that foreign corporations accumulate at least 60 percent of the flight hours for their U.S.-registered aircraft in the United States; and (3) accelerate implementation of the proposed regulations for increasing aircraft registration fees. (GAO/RCED-93-135) In a series of five reports, we recommended several improvements in FTA’s oversight of mass transit grants. The reports had documented inadequacies in FTA’s oversight; serious deficiencies in grantees’ financial, technical, procurement, inventory, and other management controls; noncompliance with federal requirements; and improper expenditures of grant funds. FTA plans to implement most of our recommendations, which, if properly executed, should help better safeguard transit funds from risk of fraud, waste, abuse, and mismanagement. FTA, however, has not completed this effort and will have to be persistent to ensure that it does not lose momentum. (GAO/RCED-91-107, GAO/RCED-92-7, GAO/RCED-92-38, GAO/RCED-92-53, and GAO/RCED-93-8) We reported that many of the 25 FAA mission need statements we had examined, which established the basic justification for acquisition projects that could cost $5 billion, contained assertions that were not supported by analysis and facts. We recommended that FAA approve only those statements and projects that were well supported with analytical evidence of current and projected needs. FAA needs to ensure that future mission need statements are adequately supported to justify costly capital investments. (GAO/RCED-93-55) In our report on precision landing systems, we examined the costs, the benefits, and the capabilities of various alternative technologies. We recommended that FAA prepare a mission need statement for precision landing systems in general based on a runway-by-runway determination of which system, or mix of systems, provides the most benefits at the lowest costs to both FAA and system users. This is especially important considering that airlines may be required to make substantial investments in some of these technologies at a time when they are experiencing severe financial difficulties. (GAO/RCED-93-33) We recommended that, to help ensure that transit needs projections better reflect future costs, FTA include (1) operating needs for the nation’s transit systems, (2) vehicle replacement needs for the entire human service operator fleet, and (3) operators’ cost estimates for Americans With Disabilities Act compliance. Further, we recommended that FTA develop new projection methods that were more reflective of potential costs; include standard data requirements for transit needs projections in planning and management system regulations; and, when determining Bureau of Transportation Statistics activities, consider transit needs data requirements. (GAO/RCED-93-61) Our report on urban transportation planning recommended that the Secretary of Transportation develop criteria and related measures for comparing highway and mass transit projects that (1) consider such factors as mobility, environmental quality, safety, cost-effectiveness, and social and economic objectives and (2) identify how these criteria and measures may be applied by transportation planners and decisionmakers. These criteria will help states develop effective solutions, regardless of mode, to deal with congestion and air quality problems. (GAO/RCED-92-112) Our report on transportation control measures recommended that the Secretary of Transportation and the Administrator of the Environmental Protection Agency (1) require local areas to assess the impact of implemented transportation control measures on reducing emissions and (2) cooperate in gathering and disseminating this information to states and localities in ozone and carbon monoxide nonattainment areas. Such information would help localities better plan for the use of transportation control measures and perhaps justify stronger disincentives to automobile use if transportation control measures prove ineffective. (GAO/RCED-93-169) In our report on Amtrak’s training programs for employees who inspect and maintain rail equipment, we recommended that Amtrak (1) identify the basic skills its employees need and develop training by which they might acquire them and (2) determine the costs associated with providing improved training. Amtrak is assessing its training needs, but it has not determined the level of funding it needs to provide the improved training. (GAO/RCED-93-68) The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 emphasized the link between traffic congestion and urban air pollution and the need to address both problems through local planning efforts. Our 1992 report identified several obstacles to achieving ISTEA’s goals in these areas and recommended that the Department of Transportation report to the Congress midway through the reauthorization cycle (FY 1995) on its activities to overcome these obstacles. We noted in particular the need to perform and widely disseminate evaluations of the effectiveness of transportation demand management measures in reducing both congestion and pollution. (GAO/PEMD-93-2) Aging Aircraft: FAA Needs Comprehensive Plan to Coordinate Government and Industry Actions (GAO/RCED-90-75) Air Traffic Control: FAA Can Better Forecast and Prevent Equipment Failures (GAO/RCED-91-179) Air Traffic Control: FAA Needs to Justify Further Investment in Its Oceanic Display System (GAO/IMTEC-92-80) Air Traffic Control: FAA’s Implementation of Modernization Projects in the Field (GAO/RCED-89-92) Air Traffic Control: Justifications for Capital Investments Need Strengthening (GAO/RCED-93-55) Air Travel: Passengers Could Be Better Informed of Their Rights (GAO/RCED-91-156) Aircraft Certification: Limited Progress on Developing International Design Standards (GAO/RCED-92-179) Aircraft Certification: New FAA Approach Needed to Meet Challenges of Advanced Technology (GAO/RCED-93-155) Aircraft Maintenance: FAA Needs to Follow Through on Plans to Ensure the Safety of Aging Aircraft (GAO/RCED-93-91) Airline Competition: Impact of Changing Foreign Investment and Control Limits on U.S. Airlines (GAO/RCED-93-7) Airport Safety: New Radar That Will Help Prevent Accidents Is 4 Years Behind Schedule (GAO/T-RCED-91-78) Airspace System: Emerging Technologies May Offer Alternatives to the Instrument Landing System (GAO/RCED-93-33) Airspace Use: FAA Needs to Improve Its Management of Special Use Airspace (GAO/RCED-88-147) Amtrak Safety: Amtrak Should Implement Minimum Safety Standards for Passenger Cars (GAO/RCED-93-196) Amtrak Training: Improvements Needed for Employees Who Inspect and Maintain Rail Equipment (GAO/RCED-93-68) Aviation Research: FAA Could Enhance Its Program to Meet Current and Future Challenges (GAO/RCED-92-180) Aviation Safety: Increased Oversight of Foreign Carriers Needed (GAO/RCED-93-42) Aviation Safety: Limited Success Rebuilding Staff and Finalizing Aging Aircraft Plan (GAO/RCED-91-119) Aviation Safety: New Regulations for Deicing Aircraft Could Be Strengthened (GAO/RCED-93-52) Aviation Safety: Problems Persist in FAA’s Inspection Program (GAO/RCED-92-14) Aviation Safety: Progress Limited With Self-Audit and Safety Violation Reporting Programs (GAO/RCED-92-85) Aviation Safety: Slow Progress in Making Aircraft Cabin Interiors Fireproof (GAO/RCED-93-37) Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft (GAO/RCED-93-135) Charter Bus Service: Local Factors Determine Effectiveness of Federal Regulation (GAO/RCED-93-162) Coast Guard: Abandoned Vessels Pollute Waterways and Cost Millions to Clean Up and Remove (GAO/RCED-92-235) Coast Guard: Acquisition Program Staff Were Funded Improperly (GAO/RCED-93-123) Coast Guard: Additional Actions Needed to Improve Cruise Ship Safety (GAO/RCED-93-103) Coast Guard: Better Process Needed to Justify Closing Search and Rescue Stations (GAO/RCED-90-98) Coast Guard: Coordination and Planning for National Oil Spill Response (GAO/RCED-91-212) Coast Guard: Housing Acquisition Needs Have Not Been Adequately Justified (GAO/RCED-92-159) Coast Guard: Inspection Program Improvements Are Under Way to Help Detect Unsafe Tankers (GAO/RCED-92-23) Coast Guard: Magnitude of Alcohol Problems and Related Maritime Accidents Unknown (GAO/RCED-90-150) Coast Guard: Management of the Research, Development, Test and Evaluation Program Needs Strengthening (GAO/RCED-93-157) Coast Guard: Oil Spills Continue Despite Waterfront Facility Inspection Program (GAO/RCED-91-161) Coast Guard: Reorganization Unlikely to Increase Resources or Overall Effectiveness (GAO/RCED-90-132) Computer Reservation Systems: Action Needed to Better Monitor the CRS Industry and Eliminate CRS Biases (GAO/RCED-92-130) Contract Award Practices: Metropolitan Washington Airports Authority Generally Observes Competitive Principles (GAO/RCED-93-63) Defense Transportation: Ineffective Oversight Contributes to Freight Losses (GAO/NSIAD-92-96) DOD Commercial Transportation: Savings Possible Through Better Audit and Negotiation of Rates (GAO/NSIAD-92-61) FAA Budget: Key Issues Need to Be Addressed (GAO/T-RCED-92-51) FAA Information Resources: Agency Needs to Correct Widespread Deficiencies (GAO/IMTEC-91-43) FAA Staffing: Improvements Needed in Estimating Air Traffic Controller Requirements (GAO/RCED-88-106) Highway Contracting: Disadvantaged Business Eligibility Guidance and Oversight Are Ineffective (GAO/RCED-92-148) Highway Safety: Safety Belt Use Laws Save Lives and Reduce Costs to Society (GAO/RCED-92-106) Highway Trust Fund: Strategies for Safeguarding Highway Financing (GAO/RCED-92-245) International Aviation: Implications of Ratifying Montreal Aviation Protocol No. 3 (GAO/RCED-91-45) International Trade: Easing Foreign Visitors’ Arrivals at U.S. Airports (GAO/NSIAD-91-6) Mass Transit: Federal Participation in Transit Benefit Programs (GAO/RCED-93-163) Mass Transit Grants: If Properly Implemented, FTA Initiatives Should Improve Oversight (GAO/RCED-93-8) Mass Transit Grants: Improved Management Could Reduce Misuse of Funds in UMTA’s Region IX (GAO/RCED-92-7) Mass Transit Grants: Noncompliance and Misspent Funds by Two Grantees in UMTA’s New York Region (GAO/RCED-92-38) Mass Transit Grants: Risk of Misspent and Ineffectively Used Funds in FTA’s Chicago Region (GAO/RCED-92-53) Mass Transit Grants: Scarce Federal Funds Misused in UMTA’s Philadelphia Region (GAO/RCED-91-107) Mass Transit Grants: UMTA Needs to Improve Procurement Monitoring at Local Transit Authority (GAO/RCED-89-94) Mass Transit: Needs Projections Could Better Reflect Future Costs (GAO/RCED-93-61) Motor Vehicle Regulations: Regulatory Cost Estimates Could Be Improved (GAO/RCED-92-110) Motor Vehicle Safety: Key Issues Confronting the National Advanced Driving Simulator (GAO/RCED-92-195) Motor Vehicle Safety: NHTSA Should Resume Its Support of State Periodic Inspection Programs (GAO/RCED-90-175) Natural Gas Pipelines: Greater Use of Instrumented Inspection Technology Can Improve Safety (GAO/RCED-92-237) Oil Spill Prevention: Progress Made in Developing Alaska Demonstration Programs (GAO/RCED-93-178) Pollution From Pipelines: DOT Lacks Prevention Program and Information for Timely Response (GAO/RCED-91-60) Railroad Safety: DOD Can Improve the Safety of On-Base Track and Equipment (GAO/RCED-91-135) Railroad Safety: FRA’s Staffing Model Cannot Estimate Inspectors Needed for Safety Mission (GAO/RCED-91-32) Railroad Safety: More FRA Oversight Needed to Ensure Rail Safety in Region 2 (GAO/RCED-90-140) Railroad Safety: New Approach Needed for Effective FRA Safety Inspection Program (GAO/RCED-90-194) Telecommunications: Concerns About Competition in the Cellular Telephone Service Industry (GAO/RCED-92-220) Telecommunications: FCC’s Handling of Formal Complaints Filed Against Common Carriers (GAO/RCED-93-83) Telecommunications: FCC’s Oversight Efforts to Control Cross-Subsidization (GAO/RCED-93-34) Traffic Congestion: Activities to Reduce Travel Demand and Air Pollution Are Not Widely Implemented (GAO/PEMD-93-2) Transportation Infrastructure: Oversight of Rental Rates for Highway Construction Equipment Is Inadequate (GAO/RCED-93-86) Transportation Infrastructure: The Nation’s Highway Bridges Remain at Risk From Earthquakes (GAO/RCED-92-59) Transportation Infrastructure: Urban Transportation Planning Can Better Address Modal Trade-offs (GAO/RCED-92-112) Truck Safety: The Safety of Longer Combination Vehicles Is Unknown (GAO/RCED-92-66) Truck Transport: Little Is Known About Hauling Garbage and Food in the Same Vehicles (GAO/RCED-90-161) Urban Transportation: Reducing Vehicle Emissions With Transportation Control Measures (GAO/RCED-93-169) In the post-cold war period, a nation’s security will be increasingly tied to its ability to achieve overall levels of productivity that can sustain a rising standard of living for its people in a complex world economy. We have responsibility for the two cabinet departments—Education and Labor—charged with providing America a future and current work force that maintains its status as “a preeminent economic superpower.” With an increasingly competitive global marketplace serving as the backdrop, the Clinton administration faces great challenges in the education and employment training arenas. Our educational system has not kept pace with the demands of a changing economy. International competition, rapid technological innovations, and workplace restructuring are creating worker dislocation and major shifts in the skill demands for workers. There are longstanding Education Department managerial problems and a myriad of uncoordinated Labor programs. To produce high-quality products and services that are competitive in a global economy, the nation must have a highly skilled work force. Our work, therefore, has focused on the quality and the financing of the education and the training of the nation’s population, beginning with preschool through the secondary grades and continuing through college, including basic and remedial education, vocational and occupational skills training, and education for the handicapped. It also focuses on employment-related programs and policies affecting the nation’s work force, such as improving transitions to employment by labor force entrants and workers dislocated from their previous jobs; enforcing regulations intended to provide safe and healthful workplaces, fair compensation for work performed, and protection against employment discrimination; and providing leadership in encouraging productive labor-management relations. During the last few years, our work has contributed significantly to legislation and congressional debate. It has also resulted in significant monetary benefits and improvements of operations and programs in key Education and Labor Department areas, such as education reform, higher education, work force competitiveness, and program management. Examples follow. Our work in elementary and secondary education has played an integral part in the debate on key federal efforts focused on improving the nation’s schools. Our report and testimony on systemwide school reform have been used by congressional members and staff as the Congress debates how to redirect federal education efforts from seeking only to ensure access and remediation for at-risk students to improving the nation’s education system for all students. Our report on the funds allocation formula for the Chapter 1 Program—the single largest federal elementary and secondary education program—provided a reasoned, objective look at one of the most contentious issues facing the 103rd Congress. Likewise, our analysis of Census data showing changes in demographics of schoolage children in the last decade provided objective information relative to not only federal fund allocation but also to the challenges schools face today, such as increased poverty. Numerous members of the Congress and their staffs requested and received briefings on these studies. On the basis of our work, the Congress made major revisions in the Carl D. Perkins Vocational Education Act, such as revisions improving allocation of program funds and increasing access to program improvement activities. The Congress also required the Department of the Interior’s Bureau of Indian Affairs (BIA) to develop a plan to overcome deficiencies in identifying and providing services to handicapped Indian preschool students. After reviewing the plan, the Congress reassigned BIA’s responsibilities to the states and tribes and provided the tribes with the funding BIA had been receiving to provide these services. Our work on the Rehabilitation Services Administration’s (RSA) guidance to states regarding the Order of Selection provision of the Rehabilitation Act of 1973 resulted in several key agency changes. That provision requires states to give priority to serving individuals with the most severe disabilities when states do not have enough resources to serve all eligible applicants. In response to our recommendations, RSA developed and issued a new Order of Selection policy and guidance to state rehabilitation agencies, plans to monitor state Order of Selection implementation decisions, and is collecting and disseminating information about various states’ successful implementation of Order of Selection procedures. Our work contributed significantly to many important changes made through the recently completed 1993 Budget Reconciliation Act (Public Law 103-66) and to the Higher Education Act of 1965—the key legislation responsible for providing financial assistance to postsecondary students. For example, during congressional deliberations about potential expansion of the Direct Student Loan Demonstration Program, we focused attention on the Department of Education’s problems in administering the Guaranteed Student Loan Program and questioned the Department’s ability to concurrently operate two major student loan programs. Our concerns contributed to the debate and a compromise proposal to phase in a limited direct lending program over 5 years in lieu of full implementation. In addition, a number of cost reduction changes were made to the Guaranteed Student Loan Program, such as requiring that the proceeds for parents’ loans be disbursed in more than one installment during the school year, implementing risk-sharing for lenders and guaranty agencies, and eliminating the minimum interest rate yield lenders can make when financing their loan portfolio with tax exempt securities. The Congressional Budget Office estimated that these types of changes could save more than $1 billion over 4 years. Information from our work on the current “nonsystem” of federally funded employment and training programs—150 programs in 14 departments and independent agencies with $24 billion in fiscal year 1993 funding—is being used to address the need to streamline our nation’s systems to assist the unemployed. This comprehensive overview data had not been compiled prior to our work and continues to be cited extensively by the Congress and the administration. We, among others, have stated that a national employment training strategy is needed, and the administration appears to be moving in this direction. An administration proposal to combine several programs to assist dislocated workers and develop one-stop career centers draws heavily on our work. Our work on the Employment Service and the Unemployment Insurance System has likewise raised the issue of whether some of the nation’s principal programs were designed for a different era and whether their role needs to be re-evaluated. A series of our studies addressing the needs of the nation’s youth to guide and facilitate their movement from school into the work force has helped the Congress and the administration focus on this issue. We found that, even though American high schools direct most of their resources toward preparing students for college, few incoming high school freshman—about 15 percent—go on to graduate and then obtain a 4-year college degree within 6 years of leaving high school. A substantial number of the remaining 85 percent wander between different education and employment experiences, many seemingly ill prepared for the workplace. Our latest report on comprehensive school-to-work transition strategies has had a significant impact on the administration’s proposal to foster state and local school-to-work opportunities. Our work on the Job Training Partnership Act provided the impetus for the Congress to undertake major revisions to the legislation, which were enacted in 1992. These revisions should begin to have such effects as better targeting of services; eliminating abuses in on-the-job training contracts; improving program evaluation, oversight, and data collection; increasing services for older workers; improving federal monitoring of racial and gender bias in services provided to participants; and saving an estimated $150 million. Prompted in part by our reports and testimony, the Congress raised the maximum penalties for violations of workplace safety and health regulations and child labor laws, which we believe will provide a more effective deterrent to potential violators. In addition, these changes will result in $198 million in increased government revenues in fiscal year 1993. Our report on legislative and administrative options for improving workers’ safety and health led to a comprehensive reexamination of the Occupational Safety and Health Administration’s (OSHA) authorizing legislation. Senate and House legislators drew heavily on the options we had identified, incorporating most of them in bills that were introduced in the last two sessions of the Congress. In our report on education issues for the new administration to consider, we recommended that there needed to be a series of administrative or legislative corrective actions, or both, to improve the Department of Education’s information and financial management systems. Such systems provide needed data and protect the federal government’s financial interests from waste, fraud, and mismanagement. The Department is redesigning its core financial management systems and requested funds for this effort in its 1994 budget. It has also taken steps to improve cash management and has established an information management committee to address data collection and dissemination problems. (GAO/OCG-93-18TR) In our report on the Department of Education’s longstanding management problems, we recommended a multiphased approach to addressing those problems. For example, we recommended that the Secretary articulate a strategic management vision for the Department and adopt a strategic management process for setting goals and priorities such as the National Education Goals, measuring progress toward those goals, and ensuring accountability for attaining them. We also recommended that the Department continue to build on its initial steps taken over the last 2 years to enhance management by implementing a departmentwide strategic management process; identifying good management practices and supporting their adoption in other appropriate parts of the Department; rewarding managers for good leadership; filling technical and policymaking leadership positions with people with appropriate skills; and creating strategic information, financial, and human resources management plans that are integrated with the Department’s overall strategic management process. The Secretary’s Reinvention Coordinating Council has been meeting weekly to establish a framework to implement such initiatives as the National Goals legislation. The Department has also begun implementing a strategic planning process, refining its financial management strategic plan, and redesigning its core financial management systems. (GAO/HRD-93-47) In a report on vocational education, we recommended that the Secretary of Education provide leadership to complete development of a national vocational education data system in cooperation with affected organizations, such as the Council of Chief State Schools Officers, and with the assistance of the National Center for Education Statistics. The reauthorized Perkins Act required Education to establish a national system, and the Department has contracted for a national data needs study that will make recommendations to develop and implement the system. (GAO/HRD-89-55) In our report on within-school discrimination under title VI of the Civil Rights Act of 1964, we recommended that the Secretary of Education issue title VI regulations that identify procedures schools should follow for assigning students to classes on the basis of academic ability or achievement level. The Department believes that expansion of title VI regulations is unnecessary. We disagree with the Department because current regulations do not provide state and local education agencies with needed standards on ability-based student assignments. (GAO/HRD-91-85) In our report on OSHA’s policies and procedures for confirming abatement of hazards, we recommended that OSHA make changes to improve its ability to detect employers who fail to correct safety and health hazards found during inspections. The Secretary of Labor and the Office of Management and Budget (OMB) have approved OSHA’s drafting a regulation to make this change. Labor plans to submit a draft regulation to OMB for review by March 1994. (GAO/HRD-91-35) In our report on the accuracy of employer injury and illness records, we recommended that OSHA improve its procedures for detecting recordkeeping violations, such as failing to report injuries, through its enforcement activities. OSHA revised its operating procedures accordingly. It has since postponed implementation of these revisions, however. OSHA issued a draft directive in March 1993 to replace its 1987 directive and now says it does not expect to implement final revised procedures until March 1995. (GAO/HRD-89-23) In our report on unemployment insurance trust fund reserves, we recommended that if the Congress wished to restore the self-financing feature of the program and to minimize the potential for significant state borrowing in recessions, it should require states to build adequate reserves during periods of low unemployment. No action has been taken on this recommendation. (GAO/HRD-88-55) After reviewing standards set to interpret students’ performance on the National Assessment of Educational Progress (NAEP), we found many technical flaws that made the results of doubtful validity. We recommended that the new standards be withdrawn by the NAEP governing board, that they not be used in reporting NAEP results, and that the governing board also take a number of specific steps to ensure that it does not adopt technically unsound policies or approve technically flawed results. (GAO/PEMD-93-12) Our 8-year followup evaluation, using unique computer-matched wage and service data, showed there are only modest long-term outcomes of the state-federal program that provides services to assist persons with disabilities to become employed, more independent, and integrated into the community. We also found unexplained disparities in the extent of services purchased for clients of different races. We recommended that the Secretary of Education find out why these disparities exist, strengthen evaluation in a number of ways, and take steps to establish the National Commission on Rehabilitation Services, authorized in 1992 to review the program in depth, before the next reauthorization. (GAO/PEMD-93-19) Adolescent Drug Use Prevention: Common Features of Promising Community Programs (GAO/PEMD-92-2) Apprenticeship Training: Administration, Use, and Equal Opportunity (GAO/HRD-92-43) Chapter 1 Accountability: Greater Focus on Program Goals Needed (GAO/HRD-93-69) Department of Education: Longstanding Management Problems Hamper Reforms (GAO/HRD-93-47) Dislocated Workers: Improvements Needed in Trade Adjustment Assistance Certification Process (GAO/HRD-93-36) Dislocated Workers: Worker Adjustment and Retraining Notification Act Not Meeting Its Goals (GAO/HRD-93-18) Educational Achievement Standards: NAGB’s Approach Yields Misleading Interpretations (GAO/PEMD-93-12) Education Issues (GAO/OCG-93-18TR) Employment Service: Improved Leadership Needed for Better Performance (GAO/HRD-91-88) Environment, Safety, and Health: Environment and Workers Could Be Better Protected at Ohio Defense Plants (GAO/RCED-86-61) Federal Employment: Displaced Federal Workers Can Be Helped by Expanding Existing Programs (GAO/GGD-92-86) Federal Prisons: Inmate and Staff Views on Education and Work Training Programs (GAO/GGD-93-33) Financial Audit: Guaranteed Student Loan Program’s Internal Controls and Structure Need Improvement (GAO/AFMD-93-20) Financial Management: Education’s Student Loan Program Controls Over Lenders Need Improvement (GAO/AIMD-93-33) Foreign Farm Workers in U.S.: Department of Labor Action Needed to Protect Florida Sugar Cane Workers (GAO/HRD-92-95) Impact Aid: Most School Construction Requests Are Unfunded and Outdated (GAO/HRD-90-90) Minimum Wages and Overtime Pay: Change in Statute of Limitations Would Better Protect Employees (GAO/HRD-92-144) National Labor Relations Board: Action Needed to Improve Case-Processing Time at Headquarters (GAO/HRD-91-29) Occupational Safety and Health: Assuring Accuracy in Employer Injury and Illness Records (GAO/HRD-89-23) Occupational Safety and Health: OSHA Action Needed to Improve Compliance With Hazard Communication Standard (GAO/HRD-92-8) Occupational Safety and Health: OSHA Policy Changes Needed to Confirm That Employers Abate Serious Hazards (GAO/HRD-91-35) Occupational Safety and Health: Penalties for Violations Are Well Below Maximum Allowable Penalties (GAO/HRD-92-48) Occupational Safety and Health: Worksite Safety and Health Programs Show Promise (GAO/HRD-92-68) Remedial Education: Modifying Chapter 1 Formula Would Target More Funds to Those Most in Need (GAO/HRD-92-16) Stafford Student Loans: Prompt Payment of Origination Fees Could Reduce Costs (GAO/HRD-92-61) Student Testing: Current Extent and Expenditures, With Cost Estimates for a National Examination (GAO/PEMD-93-8) Systemwide Education Reform: Federal Leadership Could Facilitate District-Level Efforts (GAO/HRD-93-97) Targeted Jobs Tax Credit: Employer Actions to Recruit, Hire, and Retain Eligible Workers Vary (GAO/HRD-91-33) The Changing Work Force: Comparison of Federal and Nonfederal Work/Family Programs and Approaches (GAO/GGD-92-84) Transition From School to Work: Linking Education and Worksite Training (GAO/HRD-91-105) Transition From School to Work: States Are Developing New Strategies to Prepare Students for Jobs (GAO/HRD-93-139) Unemployment Insurance: Trust Fund Reserves Inadequate (GAO/HRD-88-55) Vocational Education: Opportunity to Prepare for the Future (GAO/HRD-89-55) Vocational Rehabilitation: Better VA Management Needed to Help Disabled Veterans Find Jobs (GAO/HRD-92-100) Vocational Rehabilitation: Evidence for Federal Program’s Effectiveness Is Mixed (GAO/PEMD-93-19) Vocational Rehabilitation: VA Needs to Emphasize Serving Veterans With Serious Employment Handicaps (GAO/HRD-92-133) Welfare to Work: Implementation and Evaluation of Transitional Benefits Need HHS Action (GAO/HRD-92-118) Welfare to Work: JOBS Participation Rate Data Unreliable for Assessing States’ Performance (GAO/HRD-93-73) Welfare to Work: States Move Unevenly to Serve Teen Parents in JOBS (GAO/HRD-93-74) Within-School Discrimination: Inadequate Title VI Enforcement by the Office for Civil Rights (GAO/HRD-91-85) The Department of Defense (DOD) and the Department of Veterans Affairs (VA) operate two of the largest centrally managed health care systems in the world, spending more than $25 billion annually through 500 facilities and a network of private providers. In addition, the Health Care Financing Administration (HCFA) is administering the multibillion dollar Medicare and Medicaid programs that finance health care provided to the nations’s elderly, disabled, and economically disadvantaged. Rising health care costs and substantial budget deficits have prompted increased congressional concerns about whether these agencies are delivering quality health care to their beneficiaries as efficiently and cost effectively as possible. The downsizing of military forces and the potential transfer of beneficiaries from DOD systems to VA systems has also prompted a concern about the structure of DOD and VA health delivery systems. Our objectives in this issue area are to (1) identify ways that VA and DOD health care systems can operate more effectively and efficiently; (2) identify and assess opportunities for restructuring VA and DOD health care delivery systems to enhance universal access to health care; and (3) improve the quality of health care processes in VA, DOD, Medicare/Medicaid, and Public Health Service programs. During fiscal year 1993, we continued making progress toward achieving of these objectives. For example, our work on DOD’s efforts to reform the military health services system has identified lessons learned that can provide useful information and insight for how DOD should best proceed in implementing managed health care throughout its system. The recommendations we made, which DOD is implementing, will increase and improve accountability, budgeting, resource allocation, training, information systems, and contracting. In addition, DOD is working on establishing a uniform health care benefits package that will be more equitable for all beneficiaries. Our continued evaluation of the management of mental health care under Comprehensive Health and Medical Program of the Uniform Service (CHAMPUS) showed that DOD was making progress but still needed to adopt stronger controls to prevent duplicate and erroneous payments to providers of psychiatric care. We identified problems in the way CHAMPUS was controlling access to home health care under two demonstration projects and potential duplication between the home care program and DOD’s managed care program. Although the Congress authorized a permanent CHAMPUS home care benefit, DOD plans to address our concerns in implementing the program and include coordination of the home care program under the managed care program. We are continuing a comprehensive effort to address the restructuring of federal health care delivery systems and beneficiary eligibility reforms. This effort will provide a better understanding of, and federal options for, a system of universal access to quality health care. As part of this effort, GAO testified three times on the problems VA will likely face in competing under national health reforms. We suggested that construction of most new VA capacity be suspended until health reforms take shape. This was to avoid spending funds constructing facilities that may be obsolete before they are completed. GAO identified a series of problems in the management of VA construction projects that result in projects that are too big, take too long to construct, and cost too much. In addition, we suggested that VA consider setting up demonstration projects in several communities that currently lack VA hospitals. These demonstrations would center around VA outpatient clinics, with contracts for inpatient care. Further, we have demonstrated that VA medical centers’ outpatient care eligibility and rationing decisions could be improved and should ensure that eligible veterans receive more consistent treatment at VA facilities. Also as a result of our work, VA should be in a position to improve its policies and practices for ensuring consistent access to treatment by all eligible veterans. Our reviews of VA site selections in east central Florida and northern California resulted in reevaluations of VA decisions to build new medical centers in Orlando, Florida, and Davis, California. Based on our work, VA decided to build the facilities in Brevard County, Florida, and Fairfield, California. Both facilities will be constructed as joint ventures with the Air Force, resulting in significant cost savings. Although VA ultimately decided to proceed with construction of a new hospital in Hawaii, the revised plans do provide for greater sharing of such services as laundry and dietetics. The recommendation should remain open, however, because the facility has not received construction funding and there continues to be little justification for construction of the facility. Our work on locality-based pay for VA nurses identified significant internal control weaknesses that provide little assurance that the innovative pay system will improve recruitment and retention of nurses or that the pay rates are reasonable. Although VA has taken some action on our recommendations, more needs to be done. VA issued several directives to improve health care services to women veterans. The Congress held several hearings on the subject to help ensure that changes are made. During fiscal year 1993, we issued a capping report on our quality assurance work at VA and reported that VA Medical Centers are not correcting quality assurance problems identified by either GAO or the VA Inspector General. Our work at the Salem, Virginia, Medical Center showed that improvements are needed in the psychiatric care provided by the facility. VA concurred with our recommendations to correct these conditions. But, medical centers must take the necessary action to resolve these problems. In the past, this has not been consistently done. Apart from our work in VA, we completed several reviews in areas that impact on quality of care outside the federal sector. Specifically, we reported that work hours of resident physicians can be legislatively mandated by amending the Medicare conditions of participation, but that several factors must be taken into consideration before such action is taken. We also (1) issued a fact sheet on how utilization review organizations perform their work; (2) evaluated the effectiveness of HealthPASS, a managed care program for certain Philadelphia Medicaid recipients; and (3) reviewed HCFA’s evaluation of the Joint Commission on Accreditation of Healthcare Organizations’ application for home health care deemed status. Our review of HealthPASS resulted in recommendations to the Secretary of Health and Human Services that, if implemented, will improve the quality of care provided to recipients and give HealthPASS members better access to other Medicaid programs. As we recommended in our report on VA’s verification of a veteran’s reported income, the Congress extended VA’s authority to use tax records in determining veteran’s copayment liability. We also recommended that VA implement an income-verification system as soon as possible after such authority was extended. (GAO/HRD-92-159) In another report, we recommended that VA should only use private health care when the needed services are not available at VA facilities or a veteran’s geographic inaccessibility makes it more economical to use private care. (GAO/HRD-92-109) We recommended that VA’s plans to consolidate and automate mail-service pharmacies (1) assume maximum use of 90-day supplies when dispensing maintenance drugs prescribed at a stabilized dose, (2) select the most cost-efficient locations for the mail-service pharmacies, and (3) ensure compatibility of prescription handling and automatic data processing equipment throughout VA facilities to maximize efficiency. (GAO/HRD-92-30) In our report on federal ethics requirements at VA medical centers, we recommended that VA revise policies governing types of employment activities that medical center managers may engage in and establish stronger procedures for enforcing federal ethics requirements. (GAO/HRD-93-39) In our report on variabilities in VA’s outpatient care eligibility and rationing decisions, we recommended that VA develop better guidance to medical centers so that clinicians may achieve more consistent application of statutory eligibility requirements or propose to the Congress alternative eligibility criteria that produce greater consistency of eligibility determinations. (GAO/HRD-93-106) In our report on the establishment of the Hawaii Medical Center, we recommended that VA reconsider its decision to build additional acute care beds at Tripler Army Medical Center’s E-Wing and that VA and DOD develop a joint venture agreement to give VA autonomy over care provided to veterans at Tripler. We also recommended that VA use Tripler’s E-Wing to accommodate its planned nursing home. (GAO/HRD-92-41) In our report on the quality-of-care provided by some VA psychiatric hospitals, we recommended that each hospital director be held responsible for making certain that quality-of-care problems are identified and resolved. (GAO/HRD-92-17) We recommended that VA regional directors be required to have inspection teams ensure that every medical center in their region is complying with quality assurance requirements and that problems GAO and the Inspector General identified have been corrected. (GAO/HRD-93-20) In our report on the Salem VA Medical Center, we recommended that psychiatric care provided at the medical center be reviewed and necessary actions be taken to ensure that care meets medical center bylaws. (GAO/HRD-93-108) In our report on HealthPASS, we recommended that the Secretary of Health and Human Services (1) require the Pennsylvania Department of Public Welfare to make necessary arrangements to share the names of HealthPASS members with the Women, Infants, and Children Program and (2) direct the State of Pennsylvania to include in its contract with Healthcare Management Alternatives, Inc., a requirement to query nationwide information banks to improve the identification of potentially problematic physicians in the HealthPASS program. (GAO/HRD-93-67) In our report on the management of CHAMPUS mental health benefits, we recommended that the Secretary of Defense (1) establish a cost-based reimbursement system similar to Medicare and (2) adopt the hospital annual index used in the Medicare and CHAMPUS prospective payment system to reimburse psychiatric residential treatment centers. (GAO/HRD-93-34) In our report on fraud and abuse in psychiatric hospitals, we recommended that DOD adopt procedures for visiting and inspecting psychiatric hospitals to determine whether problems involving unnecessary hospitals stays and quality of care have been corrected and to ensure that DOD contractors improve their claims payment systems to minimize payments for unauthorized hospital stays and to avoid duplicate payments. (GAO/HRD-93-92) In our testimony on DOD’s managed health care initiatives, we recommended that, as DOD continues to contract for health care services, it (1) carefully determine when contracting will and will not be appropriate; (2) carefully determine the size of its procurements to ensure sufficient competition; and (3) take appropriate safeguards to ensure high quality and accessible care that protects beneficiaries and the government against poor contractor performance. (GAO/T-HRD-93-21) Composite Health Care System: Outpatient Capability Is Nearly Ready for Worldwide Deployment (GAO/IMTEC-93-11) Defense Health Care: Additional Improvements Needed in CHAMPUS’s Mental Health Program (GAO/HRD-93-34) Defense Health Care: CHAMPUS Mental Health Demonstration Project in Virginia (GAO/HRD-93-53) Defense Health Care: Implementing Coordinated Care—A Status Report (GAO/HRD-92-10) Defense Health Care: Lessons Learned From DOD’s Managed Health Care Initiatives (GAO/T-HRD-93-21) Defense Health Care: Obstacles in Implementing Coordinated Care (GAO/T-HRD-92-24) Defense Health Care: Physical Exams and Dental Care Following the Persian Gulf War (GAO/HRD-93-5) DOD Health Care: Further Testing and Evaluation of Case-Managed Home Health Care Is Needed (GAO/HRD-93-59) DOD Medical Inventory: Reductions Can Be Made Through the Use of Commercial Practices (GAO/NSIAD-92-58) Federal Health Benefits Program: Stronger Controls Needed to Reduce Administrative Costs (GAO/GGD-92-37) Maternal and Child Health: Block Grant Funds Should Be Distributed More Equitably (GAO/HRD-92-5) Medicaid: HealthPASS: An Evaluation of a Managed Care Program for Certain Philadelphia Recipients (GAO/HRD-93-67) Medical ADP Systems: Automated Medical Records Hold Promise to Improve Patient Care (GAO/IMTEC-91-5) Methadone Maintenance: Some Treatment Programs Are Not Effective; Greater Federal Oversight Needed (GAO/HRD-90-104) Military Health Care: Recovery of Medical Costs From Liable Third Parties Can Be Improved (GAO/NSIAD-90-49) Pesticides: Need To Enhance FDA’s Ability To Protect the Public From Illegal Residues (GAO/RCED-87-7) Psychiatric Fraud and Abuse: Increased Scrutiny of Hospital Stays Is Needed for Federal Health Programs (GAO/HRD-93-92) Trauma Care Reimbursement: Poor Understanding of Losses and Coverage for Undocumented Aliens (GAO/PEMD-93-1) VA Health Care: Actions Needed to Control Major Construction Costs (GAO/HRD-93-75) VA Health Care: Copayment Exemption Procedures Should Be Improved (GAO/HRD-92-77) VA Health Care: Inadequate Controls Over Scarce Medical Specialist Contracts (GAO/HRD-92-114) VA Health Care: Inadequate Enforcement of Federal Ethics Requirements at VA Medical Centers (GAO/HRD-93-39) VA Health Care: Labor Management and Quality-of-Care Issues at the Salem VA Medical Center (GAO/HRD-93-108) VA Health Care: Medical Centers Are Not Correcting Identified Quality Assurance Problems (GAO/HRD-93-20) VA Health Care: Modernizing VA’s Mail-Service Pharmacies Should Save Millions of Dollars (GAO/HRD-92-30) VA Health Care: Offsetting Long-Term Care Costs by Adopting State Copayment Practices (GAO/HRD-92-96) VA Health Care: Potential for Offsetting Long-Term Care Costs Through Estate Recovery (GAO/HRD-93-68) VA Health Care: Problems in Implementing Locality Pay for Nurses Not Fully Addressed (GAO/HRD-93-54) VA Health Care: Role of the Chief of Nursing Service Should Be Elevated (GAO/HRD-92-74) VA Health Care: Telephone Service Should Be More Accessible to Patients (GAO/HRD-91-110) VA Health Care: The Quality of Care Provided by Some VA Psychiatric Hospitals Is Inadequate (GAO/HRD-92-17) VA Health Care: Use of Private Providers Should Be Better Controlled (GAO/HRD-92-109) VA Health Care: VA Plans Will Delay Establishment of Hawaii Medical Center (GAO/HRD-92-41) VA Health Care: Variabilities in Outpatient Care Eligibility and Rationing Decisions (GAO/HRD-93-106) VA Health Care: Verifying Veterans’ Reported Income Could Generate Millions in Copayment Revenues (GAO/HRD-92-159) Veterans Affairs Issues (GAO/OCG-93-21TR) Veterans Benefits: Acquisition of Information Resources for Modernization Is Premature (GAO/IMTEC-93-6) Income security programs affect all Americans at some time. Their purpose, in part, is to help people become self-sufficient and to support those unable to support themselves. The programs provide cash aid to the elderly, the disabled, the poor, and veterans; a conduit for funding in-kind assistance for such needy populations as the homeless, refugees, runaway youth, and abused children; and oversight for the private pension system. Income security expenditures make up about 35 percent of all federal spending. Our work provided information and recommendations directed at (1) improving the planning and the management of retirement programs; (2) ensuring the protection of worker benefits; (3) helping the government meet the needs of the poor by getting them on the path toward self-sufficiency; (4) seeing that vulnerable groups, including the disabled, were well served and protected by income security programs; (5) improving the quality of services provided to the public; and (6) ensuring the efficient administration of income security programs. For example, because of GAO’s review, the Pension Benefit Guaranty Corporation developed and implemented new procedures for collecting insurance premiums, penalties, and interest, resulting in the collection of an additional $20 million. Also, on the basis of our recommendations, the Department of Veterans Affairs (VA) established procedures for verifying the accuracy of medical expenses claimed by pension beneficiaries and used by VA in computing benefit amounts. These procedures should save VA an estimated $91 million annually. On the basis of our recommendations, legislation was enacted authorizing the Social Security Administration (SSA) to recover debts owed by former SSA beneficiaries by requesting Treasury to withhold any tax refunds. SSA estimated that it would collect $213 million during the first 3 years of implementation of this legislation. Further, on the basis of our recommendations, legislation was enacted allowing VA access to tax data to verify income information provided by VA pension program beneficiaries and persons receiving VA unemployability benefits. When enacted, this legislation had a September 1992 expiration date. Our work in this area, which indicated that millions of dollars could be saved by matching records, led to an extension of VA’s authority until September 1997. Finally, on the basis of our recommendations related to ensuring that subsidized housing units were occupied by needy families, the Congress enacted legislation allowing the Department of Housing and Urban Development access to federal tax data to verify program eligibility. As a result of our continuing work in the use of SSA’s death information to reduce payments to deceased persons, legislation was enacted that will cause states to share previously restricted information. This will result in yearly savings of $5.5 million with first-year savings of $14 million. In addition, pursuant to our recommendations, VA and the Department of Health and Human Services (HHS) entered into an agreement to match VA compensation and pension files and SSA death files to identify and end erroneous payments. Finally, savings of $127 million annually resulted from legislation enacted upon our recommendation to reduce pension payments to veterans’ surviving spouses without dependents who receive Medicaid-supported nursing home care. In June 1992, we reported that states had done little to help defray the costs of providing child support enforcement services to clients who did not receive Aid to Families With Dependent Children (AFDC) benefits. With the broad discretion available to them, most states have implemented minimal fee policies. In 1990, about 3.5 percent of the $644 million in administrative costs for non-AFDC clients was recovered by the states through fees. We recommended that the Congress amend title IV-D of the Social Security Act to require states to recover more of these costs in the future. Congressional actions has not been initiated because the Congress is awaiting the administration’s proposals for welfare and child support reforms. (GAO/HRD-92-91) In August 1992, we reported that child abuse prevention programs had been shown to be effective. Although few in number, evaluations of these programs indicate that they reduced the incidence of abuse in high-risk families and the cost of long-range problems associated with abuse. While the federal government provides billions of dollars annually to states for foster care and other assistance for children who have already been abused, it provides relatively little funding for prevention. We recommended that, to give states incentives to implement and sustain child abuse prevention programs, the Congress amend title IV of the Social Security Act to authorize the Secretary of Health and Human Services to reimburse states, at foster care matching rates, for the cost of implementing prevention programs. The reimbursements would be provided to states that demonstrated that the programs, by reducing child abuse and related foster care placements, were paying for themselves. The Congress has taken some action to make limited funds available for possible use in child abuse prevention but has not specifically addressed our recommendation. (GAO/HRD-92-99) In September 1991, we pointed out the need for nationwide foster care data for use in federal policy deliberations. We found that the lack of common definitions or methodologies nationwide; the absence of data from states over the years; and the collection of aggregate, rather than case-level, data all served to impede the development of a national foster care information system. We recommended that the Congress (1) reemphasize the need for prompt issuance of regulations for improved state data bases, (2) amend the timetable for states to implement automated data systems, and (3) establish specific federal policy on funding these systems. Action is being taken on these recommendations. The Congress enacted legislation providing a 75-percent match for administrative costs associated with developing a foster care data base. HHS has drafted regulations that states must meet to be eligible for the match. (GAO/HRD-91-64) In November 1992, we reported that states were struggling to enforce their child care standards and promote quality in various child care settings. While legislation authorizing the Child Care and Development Block Grant (CCDBG) had been recently enacted and provided some money to states for quality improvement activities, including enforcement, HHS regulations further restricted the amount to be used for these activities. Given this, state officials were not optimistic about CCDBG’s impact on their quality improvement and enforcement efforts, especially if state budget constraints continued and heavy caseloads worsened as new providers, paid with CCDBG funds, entered the market. We recommended to HHS that it assess whether the quantity of child care services under CCDBG would exceed the states’ capacities to ensure that those services meet an acceptable level of care and, if so, modify its regulations restricting the use of CCDBG’s quality improvement money. Action has not yet been initiated on this recommendation. (GAO/HRD-93-13) In July 1989, we reported that an estimated 19 percent of veterans receiving compensation benefits had disabilities resulting from diseases that had probably been neither caused nor aggravated by military service. Many of these diseases that are related to heredity or lifestyle resulted in benefits estimated at about $1.7 billion in 1986. We recommended that the Congress reconsider whether these diseases should be compensated as service-connected disabilities. The Congress has not yet taken action. (GAO/HRD-89-60) In March 1992, we reported that three VA-administered life insurance programs had sufficient excess funds to pay their own administrative costs. This would save an estimated $27 million annually in appropriated funds. We recommended that the Congress amend 38 U.S.C. 1982 to require that these administrative costs be paid from excess interest income. The Congress has not yet initiated action. (GAO/HRD-92-42) In July 1992, we reported that the operating reserves for VA’s Servicemen’s Group Life Insurance Program (SGLI) needed to be increased by $85 million by 1998. At the same time, the contingency reserves contained about $51 million in excess funds in relation to program needs. Throughout the 1980s, VA overcharged military personnel for their insurance, causing continued growth of excess reserves. We recommended that VA (1) reduce the contingency reserve to $25 million and use the excess funds to provide a portion of the additional operating reserves and (2) compute each year the true premiums to be paid by SGLI participants and adjust premiums as appropriate. VA has not initiated action on our recommendations. (GAO/HRD-92-71) In September 1992, we reported that VA’s vocational rehabilitation program did not emphasize finding jobs for veterans, that VA did not know why most veterans had dropped out of the program, and that standards for measuring service to veterans needed to be improved. We recommended that VA (1) meet legislative requirements related to finding and maintaining suitable employment for disabled veterans, (2) work with the Department of Labor to effectively provide job placement services, (3) determine the reasons why veterans were dropping out and take action to increase the number of veterans completing the program, and (4) establish a realistic performance measurement system. VA agreed with the recommendations and has initiated some action. (GAO/HRD-92-100) We evaluated the readability of forms used by retirees who had chosen not to select survivor benefits for their spouses. In December 1989 and in December 1992, we recommended that the Internal Revenue Service (IRS) develop model language to be used by pension plans to clarify the implications of options available to retirees and their spouses. Once implemented, this recommendation could lead to an increase in the number of elderly widowed spouses receiving income from the private pension system. IRS has taken some action. (GAO/HRD-90-20) In March 1987, we reported on management problems that SSA must address to ensure high-quality services. Our report contained numerous recommendations. While some are closed, those still open address (1) improving the long-term operational plan, (2) reexamining resources and priorities of existing automated data processing systems, (3) improving various aspects of the management information system, and (4) establishing performance standards and measurements. (GAO/HRD-87-39) In July 1991, we provided information to the Congress on debt management practices at SSA, the Railroad Retirement Board, the Office of Personnel Management, and VA. We recommended that SSA (1) assign central responsibility for debt management to the Deputy Commissioner for Finance, Assessment, and Management and (2) accelerate completion of the management information system needed to support effective debt management. Also, we recommended that the Director, Office of Management and Budget, direct the Secretary of Veterans’ Affairs to assess interest and administrative costs on overpayments, as required by the Veterans Rehabilitation and Education Amendments of 1980. (GAO/HRD-91-46) Adequacy of the Administration on Aging’s Provision of Technical Assistance for Targeting Services Under the Older Americans Act (GAO/T-PEMD-91-3) Administration on Aging: More Federal Action Needed to Promote Service Coordination for the Elderly (GAO/HRD-91-45) Board and Care Homes: Elderly at Risk From Mishandled Medications (GAO/HRD-92-45) Child Abuse: Prevention Programs Need Greater Emphasis (GAO/HRD-92-99) Child Care: States Face Difficulties Enforcing Standards and Promoting Quality (GAO/HRD-93-13) Child Support Enforcement: Opportunity To Defray Burgeoning Federal and State Non-AFDC Costs (GAO/HRD-92-91) Child Support Enforcement: States Proceed With Immediate Wage Withholding; More HHS Action Needed (GAO/HRD-93-99) Debt Management: More Aggressive Actions Needed to Reduce Billions in Overpayments (GAO/HRD-91-46) Early Intervention: Federal Investments Like WIC Can Produce Savings (GAO/HRD-92-18) Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase Protection Under ERISA (GAO/AFMD-92-14) Employee Benefits: States Need Labor’s Help Regulating Multiple Employer Welfare Arrangements (GAO/HRD-92-40) Federal Employees’ Compensation Act: Need to Increase Rehabilitation and Reemployment of Injured Workers (GAO/GGD-92-30) Financial Audit: Department of Veterans Affairs Financial Statements for Fiscal Years 1989 and 1988 (GAO/AFMD-91-6) Financial Audit: System and Control Problems Further Weaken the Pension Benefit Guaranty Fund (GAO/AFMD-92-1) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Year 1986 (GAO/AFMD-87-38) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Years 1987 and 1986 (GAO/AFMD-89-23) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Years 1988 and 1987 (GAO/AFMD-89-69) Financial Management: Opportunities for Improving VA’s Internal Accounting Controls and Procedures (GAO/AFMD-89-35) Foreign Farm Workers in U.S.: Department of Labor Action Needed to Protect Florida Sugar Cane Workers (GAO/HRD-92-95) Foster Care: Children’s Experiences Linked to Various Factors; Better Data Needed (GAO/HRD-91-64) Foster Care: Services to Prevent Out-of-Home Placements Are Limited by Funding Barriers (GAO/HRD-93-76) Homelessness: Access to McKinney Act Programs Improved but Better Oversight Needed (GAO/RCED-91-29) Homelessness: Action Needed to Make Federal Surplus Property Program More Effective (GAO/RCED-91-33) Homelessness: Federal Personal Property Donations Provide Limited Benefit to the Homeless (GAO/RCED-91-108) Housing Programs: VA Can Reduce Its Guaranteed Home Loan Foreclosure Costs (GAO/RCED-89-58) Immigration Reform: Verifying the Status of Aliens Applying for Federal Benefits (GAO/HRD-88-7) Older Americans Act: More Federal Action Needed on Public/Private Elder Care Partnerships (GAO/HRD-92-94) Pension Plans: Pension Benefit Guaranty Corporation Needs to Improve Premium Collections (GAO/HRD-92-103) Premium Accounting System: Pension Benefit Guaranty Corporation System Must Be an Ongoing Priority (GAO/IMTEC-92-74) Private Pensions: Protections for Retirees’ Insurance Annuities Can Be Strengthened (GAO/HRD-93-29) Private Pensions: Spousal Consent Forms Hard to Read and Lack Important Information (GAO/HRD-90-20) Rental Housing: Housing Vouchers Cost More Than Certificates but Offer Added Benefits (GAO/RCED-89-20) Social Security Administration: Stable Leadership and Better Management Needed To Improve Effectiveness (GAO/HRD-87-39) Social Security: Beneficiary Payment for Representative Payee Services (GAO/HRD-92-112) Social Security Disability: SSA Needs to Improve Continuing Disability Review Program (GAO/HRD-93-109) Social Security: IRS Tax Identity Data Can Help Improve SSA Earnings Records (GAO/HRD-93-42) Social Security: Many Administrative Law Judges Oppose Productivity Initiatives (GAO/HRD-90-15) Social Security: Measure of Telephone Service Accuracy Can Be Improved (GAO/HRD-91-69) Social Security: Need for Better Coordination of Food Stamp Services for Social Security Clients (GAO/HRD-92-92) Social Security: Need to Improve Postentitlement Service to the Public (GAO/HRD-93-21) Social Security: Racial Difference in Disability Decisions Warrants Further Investigation (GAO/HRD-92-56) Social Security: Reconciliation Improved SSA Earnings Records, but Efforts Were Incomplete (GAO/HRD-92-81) Social Security: Reporting and Processing of Death Information Should Be Improved (GAO/HRD-92-88) Social Security: Selective Face-to-Face Interviews With Disability Claimants Could Reduce Appeals (GAO/HRD-89-22) Social Security: Status and Evaluation of Agency Management Improvement Initiatives (GAO/HRD-89-42) SSA Computers: Long-Range Vision Needed to Guide Future Systems Modernization Efforts (GAO/IMTEC-91-44) The New Earned Income Credit Form Is Complex and May Not Be Needed (GAO/T-GGD-91-68) Urban Poor: Tenant Income Misreporting Deprives Other Families of HUD-Subsidized Housing (GAO/HRD-92-60) VA Benefits: Law Allows Compensation for Disabilities Unrelated to Military Service (GAO/HRD-89-60) VA Life Insurance: Administrative Costs for Three Programs Should Be Paid From Excess Funds (GAO/HRD-92-42) VA Life Insurance: Premiums and Program Reserves Need More Timely Adjustments (GAO/HRD-92-71) Veterans Affairs IRM: Stronger Role Needed for Chief Information Resources Officer (GAO/IMTEC-91-51BR) Veterans’ Benefits: Improved Management Needed to Reduce Waiting Time for Appeal Decisions (GAO/HRD-90-62) Veterans’ Compensation: Premature Closing of VA Office in the Philippines Could Be Costly (GAO/HRD-93-96) Vocational Rehabilitation: Better VA Management Needed to Help Disabled Veterans Find Jobs (GAO/HRD-92-100) Vocational Rehabilitation: VA Needs to Emphasize Serving Veterans With Serious Employment Handicaps (GAO/HRD-92-133) Welfare Benefits: States Need Social Security’s Death Data to Avoid Payment Error or Fraud (GAO/HRD-91-73) Welfare Eligibility: Programs Treat Indian Tribal Trust Fund Payments Inconsistently (GAO/HRD-88-38) Welfare Programs: Ineffective Federal Oversight Permits Costly Automated System Problems (GAO/IMTEC-92-29) Welfare to Work: Implementation and Evaluation of Transitional Benefits Need HHS Action (GAO/HRD-92-118) Welfare to Work: JOBS Participation Rate Data Unreliable for Assessing States’ Performance (GAO/HRD-93-73) Welfare to Work: States Move Unevenly to Serve Teen Parents in JOBS (GAO/HRD-93-74) As health care financier and insurer, the federal government serves over 35 million elderly and disabled under Medicare, an estimated 33 million poor under Medicaid, and 9 million active and retired federal employees and their families under the Federal Employees Health Benefits Program. The government’s primary programs for financing health care, Medicare and Medicaid, have a federal spending total estimated at over $260 billion in fiscal year 1994; an additional $70 billion in state and local funds is expected to be spent on Medicaid. Our primary objective in reviewing these programs is to find ways to reduce costs without adversely affecting beneficiary access to quality care. Other important objectives are to (1) assess the processes used to control and identify fraud, abuse, and mismanagement in the programs; (2) evaluate quality-of-care assurance systems; and (3) review issues related to beneficiary access to care. Throughout the 1980s, the Congress looked to Medicare for deficit reduction opportunities, and billions of dollars in monetary savings were achieved. Medicaid became a means of expanding health care services for those too poor to obtain them, particularly pregnant women and children. But, the 1990s are presenting new challenges to these programs and health care in general. Health care costs have skyrocketed, and the nation’s uninsured-underinsured population continues to grow. New approaches for delivering health care services to millions of Americans are being tried. Our work continues to support many of the Medicare and Medicaid program initiatives and legislative changes undertaken by the Congress. In August 1993, the Omnibus Budget Reconciliation Act (OBRA) of 1993 became law. This act was the first major legislation affecting the health-financing programs since 1990 and contains a number of provisions related to our recommendations. For example, OBRA: Reduces Medicare’s clinical diagnostic laboratory service fee schedule payment rates. The act phases in the reduction and will reach the level we recommended in 1996. This provision will result in 5-year savings to Medicare of $3.3 billion. Implements our recommendation to equalize Medicare payment rates for anesthesia services whether anesthesiologists directly furnish the service or certified registered nurse anesthetists furnish it under the medical direction of an anesthesiologist. This action is being phased in over 5 years, and Medicare savings over that period will total $429 million. Shifts certain supply items, used by Medicare patients in their homes, to a different fee schedule category as we had recommended. This will result in lower payment rates for the shifted items and achieve 5-year savings of $97 million. Eliminates the Medicare requirement to set higher payment limits for hospital-based home health agencies then for freestanding agencies. We reported that the higher limits were not necessary to ensure beneficiary access to services. OBRA eliminated the differential in payment limits, which will reduce Medicare costs over 2 years by $220 million. Prohibits physicians from referring Medicare and Medicaid beneficiaries to a variety of providers and suppliers if the physicians have ownership interests in them. We reported that physicians who had ownership interests in laboratories and diagnostic imaging facilities ordered more, and more expensive, services than physicians who did not have such ownership interests. The new provision will result in an estimated 5-year savings of $387 million. Makes a number of changes to Medicare and Medicaid rules related to when employer-sponsored group health insurance pays for beneficiaries’ services. These changes included standardizing the definition of employers covered by Medicare’s secondary payor provisions, extending their effective dates, and establishing a registry of Medicare and Medicaid beneficiaries with coverage under employer-sponsored plans. We have reported and testified many times on problems with, and opportunities to improve, the Medicare and Medicaid secondary payer programs. Our work contributed to enactment of OBRA provisions. In total, the congressional actions in this area will result in a 5-year savings of $5.6 billion. Clarifies, as we recommended, when anticancer drugs that are used in situations not covered by their Food and Drug Administration-approved labeling will be paid by Medicare. This will increase the uniformity of payment determinations across the country and ease administrative and financial burdens for beneficiaries and providers. Puts new limitations on how states distribute payments to hospitals with a disproportionate share of Medicaid and indigent patients. A hospital may not be designated as a disproportionate share hospital unless it has a Medicaid inpatient utilization rate of at least 1 percent. In addition, payments to disproportionate share hospitals may not exceed the cost of providing care less amounts received from Medicaid and the uninsured. Two recent reports on the disproportionate share program highlighted issues associated with the distribution of funds to hospitals participating in the program. Our work contributed to the legislative changes. Places additional restrictions on the transfer of assets by persons applying for Medicaid. The “look back” period for asset transfers is extended to 36 months. Individuals transferring assets within this period will have to wait an extended period before they are eligible to participate in Medicaid. Our report contributed to these changes. Total 5-year savings will total $650 million. Requires states to recover the costs of nursing facility and other long-term care services furnished to Medicaid beneficiaries from the estates of such beneficiaries. The law further requires states to establish hardship procedures for waiver of recovery in cases where undue hardship would result. We recommended similar actions. Total 5-year savings will amount to $310 million. During the year, we continued to monitor efforts by Medicare contractors to recover duplicate payments from providers and private insurers. Our previous work identified ways that the Health Care Financing Administration (HCFA), through its Medicare contractors, could recover several hundred million dollars in mistaken payments. So far, hospital and other providers have refunded $462 million in outstanding credit balances. Also, Medicare contractors continue to recover payments for services that were subsequently determined to be the responsibility of private insurers. Backlogs of mistaken payments were reduced from over $1 billion to about $135 million. Our most recent testimony highlighted the difficulties in identifying beneficiaries with other health insurance and suggested approaches that HCFA should pursue in its efforts to obtain insurance information before payments are made. Our review of Medicare audits of dialysis facility cost reports found that the audits were incomplete and had been poorly done. If the audits had been adequately performed, additional costs would probably have been disallowed, which would have resulted in a reduction of the median cost per treatment. Our work relating to Medicare payments for braces and artificial limbs showed that there was no need to establish separate fees for professional services because Medicare’s payment amounts for these items included a component for the practitioner’s professional services. Other fiscal year 1993 reports dealt with (1) HCFA management weaknesses relating to the lack of information on program safeguard activities, (2) changes in drug prices paid by health maintenance organizations and hospitals since the enactment of OBRA 1990 Medicaid drug rebate provisions, (3) Medicare payment rates for mammography, and (4) Medicaid drug fraud. Virtually, all states have already established, or will soon establish, managed care programs for their low-income populations. Such programs can provide an opportunity to improve access while providing quality comparable to that provided by more-traditional fee-for-service programs. Our report and testimony showed that strong monitoring and oversight were needed to help ensure patient access. Our report on Oregon’s managed care program demonstrated the need for additional program safeguards. As a result, the Secretary of Health and Human Services required the state to provide assurances that the program has enough providers to serve the intended population and report on participating plans’ quality assurance programs, financial viability, and disclosure of ownership. We recommended that HCFA (1) survey the technical component costs incurred by facilities providing radiology services and revise the fee schedule to more accurately reflect the costs incurred and (2) periodically adjust technical component payments to reflect changing costs, with annual payment reviews for procedures using high-cost technologies. This would save Medicare a significant amount of money and, even though costs per scan would decrease, providers would still realize profits because there would be fewer machines and utilization would rise. (GAO/HRD-92-59) We recommended that HCFA develop and issue specific coverage criteria for durable medical equipment that it identifies as subject to unnecessary payments. We also recommended that HCFA require physicians to provide narrative justifications for this equipment on certificates of medical necessity. These actions could substantially reduce Medicare expenditures. (GAO/HRD-92-64) We reported that the extra payments to Medicare teaching hospitals were too high and that the Congress should reduce the percentage add-on payments that teaching hospitals received. About $1 billion could be saved annually. (GAO/HRD-89-33) We recommended that the Congress amend the law to provide a fixed upper limit on the size of monetary penalties in lieu of the current cost-based limit. This would provide a more substantial penalty, and penalty amounts would be determined in the same manner as other provisions administered by the Inspector General of Health and Human Services. (GAO/HRD-89-18) Funding of Medicare’s safeguard activities has not kept pace with program growth. As a result, opportunities to save hundreds of millions of dollars annually have been lost. The basic problem is that under deficit control legislation, increasing safeguard funding requires reducing federal expenditures in benefit programs or raising taxes. We recommended that, because safeguard activities were cost-effective, returning in savings over $10 for every dollar spent on the activities, the Congress establish a process whereby increased funding of safeguard activities would not necessitate budget cuts in other areas. (GAO/HRD-91-67) We recommended that the Mayor of the District of Columbia establish a demonstration or pilot project focusing on the enrollment of Medicaid-eligible persons at hospitals. The project could (1) identify and describe the eligible patients having the most difficulty getting enrolled, (2) identify the assistance needs of these groups, and (3) test methods of providing these patients with needed assistance through outstationing of eligibility workers and other means. (GAO/HRD-93-28) We recommended that the Secretary of Health and Human Services direct the HCFA Administrator to develop an overall strategy to address prescription diversion as part of the larger problem of Medicaid fraud. This would highlight the importance of lessons learned from state initiatives and their applicability to health care in general. One key element of such a strategy might be the designation of a unit within HCFA responsible for (1) conducting continuing evaluations of state initiatives targeting prescription diversion and other Medicaid fraud and (2) providing guidance and technical assistance tailored to individual state problems. (GAO/HRD-93-118) Alleged Lobbying Activities: Office for Substance Abuse Prevention (GAO/HRD-93-100) District of Columbia: Barriers to Medicaid Enrollment Contribute to Hospital Uncompensated Care (GAO/HRD-93-28) Durable Medical Equipment: Specific HCFA Criteria and Standard Forms Could Reduce Medicare Payments (GAO/HRD-92-64) Health Insurance: Vulnerable Payers Lose Billions to Fraud and Abuse (GAO/HRD-92-69) Long-Term Care Case Management: State Experiences and Implications for Federal Policy (GAO/HRD-93-52) Medicaid Drug Fraud: Federal Leadership Needed to Reduce Program Vulnerabilities (GAO/HRD-93-118) Medicaid: Ensuring that Noncustodial Parents Provide Health Insurance Can Save Costs (GAO/HRD-92-80) Medicaid: HealthPASS: An Evaluation of a Managed Care Program for Certain Philadelphia Recipients (GAO/HRD-93-67) Medicaid: Oversight of Health Maintenance Organizations in the Chicago Area (GAO/HRD-90-81) Medicare: Excessive Payments Support the Proliferation of Costly Technology (GAO/HRD-92-59) Medicare: Experience Shows Ways to Improve Oversight of Health Maintenance Organizations (GAO/HRD-88-73) Medicare: Further Changes Needed to Reduce Program and Beneficiary Costs (GAO/HRD-91-67) Medicare: HCFA Needs to Take Stronger Actions Against HMOs Violating Federal Standards (GAO/HRD-92-11) Medicare: HCFA Should Improve Internal Controls Over Part B Advance Payments (GAO/HRD-91-81) Medicare: Indirect Medicare Education Payments Are Too High (GAO/HRD-89-33) Medicare: Millions of Dollars in Mistaken Payments Not Recovered (GAO/HRD-92-26) Medicare: One Scheme Illustrates Vulnerabilities to Fraud (GAO/HRD-92-76) Medicare: Over $1 Billion Should Be Recovered From Primary Health Insurers (GAO/HRD-92-52) Medicare: Payments for Clinical Laboratory Test Services Are Too High (GAO/HRD-91-59) Medicare Physician Payment: Geographic Adjusters Appropriate But Could Be Improved With New Data (GAO/HRD-93-93) Medicare: PRO Review Does Not Assure Quality of Care Provided by Risk HMOs (GAO/HRD-91-48) Medicare: Reasonableness of Health Maintenance Organization Payments Not Assured (GAO/HRD-89-41) Medicare: Renal Facility Cost Reports Probably Overstate Costs of Patient Care (GAO/HRD-93-70) Medicare: Separate Payment for Fitting Braces and Artificial Limbs Is Not Needed (GAO/HRD-93-98) Medicare: Statutory Modifications Needed for the Peer Review Program Monetary Penalty (GAO/HRD-89-18) Medicare: Variations in Payments to Anesthesiologists Linked to Anesthesia Time (GAO/HRD-91-43) Screening Mammography: Higher Medicare Payments Could Increase Costs Without Increasing Use (GAO/HRD-93-50) The federal government is the guardian of the public health. Among its functions in this role are providing research funds, support for educating and training health professionals, and surveillance of contagious diseases; overseeing food and drugs; providing block grants to states for mental health services, drug and alcohol programs, and maternal and child health services; and providing health care services to underserved areas and population groups. The Public Health Service, through its numerous administrations and agencies, carries out most of these tasks. Our work has made a significant contribution to the debate on health insurance reform as it relates to affordability and availability of health care. We issued reports that discussed approaches to addressing rising health care costs and declining availability of health insurance. We have continued to look at foreign, state, and local models of reform that was combined with earlier work. Our reviews of German health care reform and superior access and cost containment in Rochester, New York, suggest that universal access to health insurance is an achievable goal entailing changes in the role of government, the structure of the health finance system, and the financial responsibilities of individuals and employers. We have also supported congressional oversight of the Public Health Service. Our work has pointed out the need for more sustained and systemic management attention by the Department of Health and Human Services (HHS) in the issuance of Food and Drug Administration (FDA) regulations, in the regulation of hospital sterilants, and in monitoring the national organ transplant program. During fiscal year 1993, the results of much of our work were presented to the Speaker of the House of Representatives and the Majority Leader of the Senate in a transition report on health care reform. The report discussed major policy, management, and program issues facing the Congress and the new administration. In our April 1993 report, we identified weaknesses in the national system, established by federal legislation, to increase the supply of transplant donor organs (such as kidneys and hearts) and ensure an equitable distribution of organ donations. We found that some organ procurement organizations did not follow the policy for ranking potential donor recipients, did not use areawide lists when selecting patients to receive organs, and did not keep documentation of their selection decisions. As a result of this practice, some higher-ranked patients at transplant centers that were not in the selection process could miss their chance of getting an organ transplant. We recommended that HHS (1) require procurement organizations to use established criteria for allocating donor organs and selecting organ recipients and (2) establish criteria for measuring the effectiveness of organ procurement organizations. (GAO/HRD-93-56) In June 1993, we reported on FDA’s regulation of hospital sterilants and disinfectants used to clean medical instruments. These products are supposed to protect patients from serious infections that can result when unsterile instruments are used in treating them. FDA requires manufacturers to submit evidence that their products are safe and effective in killing harmful microorganisms before they are marketed. We found that only a few sterilant and disinfectant manufacturers had registered their products with FDA and that there were hundreds of products on the market that had not been authorized by FDA, as required by law. We recommended that the FDA Commissioner ensure that all current and future manufacturers of sterilants and disinfectants comply with the requirements for marketing their products. (GAO/HRD-93-79) Our recent review of the three major sources of information on use of illegal drugs showed that the nation lacked good evidence on which to gauge progress in drug control. Surveys of households and high school students do not cover the populations at highest risk and, for those who are surveyed, self-reports of drug use are questionable. We recommended that the Secretary of Health and Human Services make new efforts to validate the commonly used self-report surveys, that the Congress change current laws to require less frequent collection of data on the general population, and that the Secretary of Health and Human Services expand special studies of high-risk groups to fill the gaps in current surveys. (GAO/PEMD-93-18) Access to Health Care: States Respond to Growing Crisis (GAO/HRD-92-70) ADMS Block Grant: Drug Treatment Services Could Be Improved by New Accountability Program (GAO/HRD-92-27) Adolescent Drug Use Prevention: Common Features of Promising Community Programs (GAO/PEMD-92-2) Biotechnology: Managing the Risks of Field Testing Genetically Engineered Organisms (GAO/RCED-88-27) Board and Care Homes: Elderly at Risk From Mishandled Medications (GAO/HRD-92-45) Child Abuse: Prevention Programs Need Greater Emphasis (GAO/HRD-92-99) Childhood Immunization: Opportunities to Improve Immunization Rates at Lower Cost (GAO/HRD-93-41) Community Health Centers: Administration of Grant Awards Needs Strengthening (GAO/HRD-92-51) Drug Abuse Research: Federal Funding and Future Needs (GAO/PEMD-92-5) Drug Abuse: Research on Treatment May Not Address Current Needs (GAO/HRD-90-114) Drug Treatment: Despite New Strategy, Few Federal Inmates Receive Treatment (GAO/HRD-91-116) Early Intervention: Federal Investments Like WIC Can Produce Savings (GAO/HRD-92-18) FDA Regulations: Sustained Management Attention Needed to Improve Timely Issuance (GAO/HRD-92-35) Food Safety and Quality: FDA Strategy Needed to Address Animal Drug Residues in Milk (GAO/RCED-92-209) Food Safety and Quality: Uniform, Risk-based Inspection System Needed to Ensure Safe Food Supply (GAO/RCED-92-152) Food Safety: Building a Scientific, Risk-Based Meat and Poultry Inspection System (GAO/T-RCED-93-22) Freedom of Information: FDA’s Program and Regulations Need Improvement (GAO/HRD-92-2) Health Information Systems: National Practitioner Data Bank Continues to Experience Problems (GAO/IMTEC-93-1) Health Insurance: Vulnerable Payers Lose Billions to Fraud and Abuse (GAO/HRD-92-69) Hospital Sterilants: Insufficient FDA Regulation May Pose a Public Health Risk (GAO/HRD-93-79) Long-Term Care Case Management: State Experiences and Implications for Federal Policy (GAO/HRD-93-52) Long-Term Care Insurance: Risks to Consumers Should Be Reduced (GAO/HRD-92-14) Management of HHS: Using the Office of the Secretary to Enhance Departmental Effectiveness (GAO/HRD-90-54) Maternal and Child Health: Block Grant Funds Should Be Distributed More Equitably (GAO/HRD-92-5) Medical Technology: For Some Cardiac Pacemaker Leads, the Public Health Risks Are Still High (GAO/PEMD-92-20) Medical Technology: Quality Assurance Needs Stronger Management Emphasis and Higher Priority (GAO/PEMD-92-10) Medical Technology: Quality Assurance Systems and Global Markets (GAO/PEMD-93-15) Medical Waste Regulation: Health and Environmental Risks Need to Be Fully Assessed (GAO/RCED-90-86) Methadone Maintenance: Some Treatment Programs Are Not Effective; Greater Federal Oversight Needed (GAO/HRD-90-104) Nuclear Health and Safety: More Attention to Health and Safety Needed at Pantex (GAO/RCED-91-103) Occupational Safety & Health: OSHA Action Needed to Improve Compliance With Hazard Communication Standard (GAO/HRD-92-8) Organ Transplants: Increased Effort Needed to Boost Supply and Ensure Equitable Distribution of Organs (GAO/HRD-93-56) Pesticides: Need To Enhance FDA’s Ability To Protect the Public From Illegal Residues (GAO/RCED-87-7) Public Health Service: Evaluation Set-Aside Has Not Realized Its Potential to Inform the Congress (GAO/PEMD-93-13) Public Housing: Housing Persons With Mental Disabilities With the Elderly (GAO/RCED-92-81) State Health Care Reform: Federal Requirements Influence State Reforms (GAO/T-HRD-92-55) Truck Transport: Little Is Known About Hauling Garbage and Food in the Same Vehicles (GAO/RCED-90-161) The administration of justice issue area encompasses a wide range of federal activities, including all (1) civil and criminal law enforcement, such as antitrust, firearms licensing, and drug abuse; (2) litigative and judicial activities, such as sentencing reform; (3) correctional activities; and (4) immigration control and criminal justice assistance. As part of the Congress’ effort to identify successful drug abuse control programs, we examined the Treatment Alternatives to Street Crime Program. We found that Treatment Alternatives to Street Crime appeared promising as a way to help reduce offender drug use. Several barriers to Treatment Alternatives to Street Crime Program implementation exist, however, including disagreement on how Treatment Alternatives to Street Crime should be funded and lack of impact because Treatment Alternatives to Street Crime Programs are not located in many areas that have major drug problems. In its 1992 National Drug Control Strategy, the Office of National Drug Control Policy (ONDCP) also believed that Treatment Alternatives to Street Crime had promise and recommended that Treatment Alternatives to Street Crime be expanded. ONDCP has not, however, taken any specific actions to expand Treatment Alternatives to Street Crime. We recommended that ONDCP take the lead on expanding Treatment Alternatives to Street Crime. We also recommended that the ONDCP Director, in concert with relevant federal and state officials, identify additional cities that might benefit from Treatment Alternatives to Street Crime and reach agreement on Treatment Alternatives to Street Crime funding. ONDCP plans, in its 1993 interim drug strategy, to emphasize the need for additional Treatment Alternatives to Street Crime Programs. In the area of inspecting firearms licenses, we urged the Bureau of Alcohol, Tobacco, and Firearms (ATF) to randomly sample and inspect dealer licensees in order to obtain information that could help ATF better manage its compliance inspection efforts. In that regard, ATF initiated an effort to obtain statistically valid information with which it could make projections and provide more accurate information to the Congress about the dealer licensee universe. Regarding processing applicants for new firearms licenses, we urged ATF to expedite issuance of licenses to applicants who passed required background checks but for whom ATF field offices determined a field inspection was not necessary. Subsequently, ATF revised its license-processing procedures to ensure expedited license issuances when such circumstances were met. Our work on white-collar crime continued to focus on the federal government’s response to the bank and thrift fraud crisis. We pointed out that fraud and wrongdoing played a significant role in the financial institution crisis and called for enhanced, coordinated efforts by Justice, Treasury, the Resolution Trust Corporation (RTC), and the Federal Deposit Insurance Corporation (FDIC). The collection of fines and restitution ordered in criminal cases continues to be a problem. The great majority of fines and restitution remain unpaid. Criminal debt collection is plagued by multiple agency involvement, unclear delegations of authority, and the lack of a centralized collection and tracking system. The U.S. Courts National Fine Center is designed, in part, to address such problems. We reported, however, that implementation of the Fine Center’s efforts has been delayed, in part because of the poor state of records on criminal debts. We have carried out a significant body of work in money laundering focusing primarily on improvements in enforcing the provisions of the Bank Secrecy Act and section 6050I of the Tax Code and ways to better use the reports required by these laws. We called for increasing involvement of the states in money-laundering enforcement and recommended improvements that would result in increased state use of federal money-laundering reports. The Judicial Conference has adopted our recommendation that it provide the Congress data explaining the policies, formal and informal, it uses to assess the need for additional judgeships. It has also begun to develop a more accurate, useful measure of appellate judge workload, as recommended. The Bureau of Prison’s (BOP) total inmate population is growing at the rate of about 700 inmates per month. To keep pace without increasing overcrowding, BOP would need to open the equivalent of one new low-security facility every month. In response to our recommendations, BOP established a double-bunking policy in 1991, which saved about $210 million for existing institutions and is expected to save about $260 million in new construction through fiscal year 1994. BOP revised the policy further to fully double-bunk minimum-security and low-security facilities and to include some double-bunking at administrative-level and high-security facilities, thus saving additional funds because new capacity requirements are further reduced. By taking full advantage of less costly halfway houses for inmates with short sentences or inmates nearing the end of their prison terms, BOP can decrease prison crowding without building new prisons. As a result of our recommendations, BOP implemented new guidance on the use of halfway houses and has increased its use of total available contract beds from 73 percent in 1991 to 87 percent as of November 1992. In our report on drug use measurement, we recommended to the Congress that part A of title V of the Public Health Service Act be amended to provide that the Secretary of Health and Human Services collect survey data only biennially, rather than each year, on the national prevalence of the various forms of substance abuse among high school students and the general population. But if local or regional indicators portend an increase in drug use, then the Secretary should have the authority to initiate new or augment current studies to determine the nature and the degree of the problem. We also recommended that the Secretary of Health and Human Services (1) develop or improve supplementary data sources to more appropriately determine heroin and cocaine prevalence patterns and trends; (2) design and conduct a systematic program for the study of drug use prevalence rates among underrepresented high-risk groups; and (3) give high priority to validating self-reports of the use of illicit drugs, focusing particularly on objective techniques, such as hair testing. In addition, we recommended that the Director, National Institute of Justice, (1) review the practicality of improving the Drug Use Forecasting design and (2) give priority to creating a drug use forecasting arrestee data base that could be generalized to booked arrestees in the geographic areas surveyed. (GAO/PEMD-93-18) In our testimony on misuse of criminal justice information contained in the National Crime Information Center (NCIC), we identified sufficient examples of misuse about which we recommended that the Congress enact legislation with strong criminal sanctions directed specifically at the misuse of NCIC. Further, we recommended that the Federal Bureau of Investigation Director and the NCIC Advisory Policy Board re-evaluate the security specifications in the NCIC Security Policy and, as a minimum, amend the policy to endorse and encourage state and local users to enhance their security features. (GAO/T-GGD-93-41) The federal government’s response to the bank and thrift fraud crisis is not as coordinated as it should be. Justice’s Special Counsel for Financial Institution Fraud has not been effectively managed this response from a governmentwide perspective. We recommended that the Special Counsel determine the adequacy of Justice and non-Justice resources devoted to financial institution fraud and develop measures for gauging the overall effectiveness of the government’s response. (GAO/GGD-93-48) As a part of efforts to address wrongdoing in connection with failed thrifts, RTC is responsible for pursuing professional liability claims against those whose alleged professional misconduct caused losses to failed thrifts. But, certain RTC management actions have disrupted the professional liability program. RTC needs to take steps to stabilize this program including working with FDIC to ensure an orderly transfer of functions to FDIC. (GAO/T-GGD-92-42) National Fine Center is designed to address a number of problems with the collection of criminal fines and restitution orders. Full implementation of National Fine Center has been delayed, and the design has security flaws. We recommended that the Administrative Office of the Courts take a number of steps to improve the security of the system to better ensure unauthorized access to the sensitive data. (GAO/GGD-93-95) Greater involvement by state law enforcement in addressing money laundering would help reduce the profitability of crime. The federal government could do more to help the states provide data from reports required by the Bank Secrecy Act and section 6050I of the Internal Revenue Code. We recommended that the Congress amend the disclosure provisions of the Internal Revenue Code to give the Secretary of Treasury permanent authority to disclose information reported on Internal Revenue Service Forms 8300 and to allow states access to the data on the same basis as federal law enforcement agencies. (GAO/GGD-93-1) Our report on sentencing guidelines identified major shortcomings in the data available to determine the impact of the guidelines. We recommended that the Congress direct the U.S. Sentencing Commission to continue its efforts to analyze sentencing disparity under the sentencing guidelines, particularly unwarranted disparity. Action has not yet been taken. (GAO/GGD-92-93) In our general management report on the Immigration and Naturalization Service (INS), we recommended that the Commissioner of INS set priorities within the framework of the overall INS mission and reorganize the agency’s field structure. We also made recommendations to reduce the overlap and the duplication in the enforcement program, improve allocation of resources in the examination and inspection programs, and strengthen the financial and information management programs. INS has taken steps to address some of these recommendations, particularly in the financial management area. (GAO/GGD-91-28) Unless the programs designed to prevent aliens from illegally entering the country and to remove those who have no legal basis to remain here are made more effective, INS has little hope of detaining any more than a small fraction of the criminal and other aliens meeting its detention criteria. Inevitable, proposals to tighten the nation’s borders and to expedite the expulsion of deportable aliens have to consider their rights to constitutionally based protections and must deal with complex and sensitive issues, such as potential strains in relationships with Mexico and other nations, humanitarian concerns relating to equitable treatment of aliens, and difficult budgetary tradeoffs. Nonetheless, until the Congress comes to grips with these problems and tradeoffs, little progress in resolving detention issues can be expected. The Congress may therefore wish to address border security and deportation issues in the course of future deliberations on immigration policy, specifically: How tight do we want our borders to be? How aggressively should we expel deportable aliens? How much additional funding are we willing to invest in these efforts? (GAO/GGD-92-85) Our general management review of the Customs Service found that Customs cannot adequately ensure that it is meeting its responsibilities to combat unfair foreign trade practices or protect the public from unsafe goods because of interrelated problems in the management culture, including weak mission planning and outdated organizational structures. In September 1992, we recommended that Customs institute a strategic management process to set priorities for its trade enforcement strategy, establish measurable performance objectives, and monitor progress toward achieving them. Customs has formed task forces to address these, but it has made little progress to date. We also recommended that Customs evaluate the adequacy of its current headquarters organizational structure and its relationship to the new trade enforcement strategy that it will develop. In addition, we recommended that the Congress remove existing legislative provisions prohibiting Customs from planning changes to its field structure. Customs has a number of actions in process responsive to our recommendations. It has developed a draft 5-year strategic plan and plans to develop measures to assess performance against the plan’s goals. It has formed a task force to establish a statistically valid approach to assessing compliance with the trade laws. The preliminary results of the task force’s work confirms our findings that Customs has a greater noncompliance problem than it realized. Customs sought and obtained congressional repeal of the legislative provisions prohibiting it from planning changes to its field structure. It now has formed a task force to develop a proposal for a new organizational structure. (GAO/GGD-92-123) Asset Forfeiture: Improved Guidance Needed for Use of Shared Assets (GAO/GGD-92-115) Asset Forfeiture: Noncash Property Should Be Consolidated Under the Marshals Service (GAO/GGD-91-97) Bank and Thrift Criminal Fraud: The Federal Commitment Could Be Broadened (GAO/GGD-93-48) Bank and Thrift Failures: FDIC and RTC Could Do More to Pursue Professional Liability Claims (GAO/T-GGD-92-42) Bankruptcy Administration: Justification Lacking for Continuing Two Parallel Programs (GAO/GGD-92-133) Child Abuse: Prevention Programs Need Greater Emphasis (GAO/HRD-92-99) Customs Service and INS: Dual Management Structure for Border Inspections Should Be Ended (GAO/GGD-93-111) Customs Service: Comments on the Customs Modernization and Informed Compliance Act (GAO/T-GGD-92-22) Customs Service: 1911 Act Governing Overtime Is Outdated (GAO/GGD-91-96) Customs Service: Trade Enforcement Activities Impaired by Management Problems (GAO/GGD-92-123) Defense Procurement Fraud: Justice’s Overall Management Can Be Enhanced (GAO/GGD-88-96) Document Security: Justice Can Improve Its Controls Over Classified and Sensitive Documents (GAO/GGD-93-134) Drug Abuse: Research on Treatment May Not Address Current Needs (GAO/HRD-90-114) Drug Control: Communications Network Funding and Requirements Uncertain (GAO/NSIAD-92-29) Drug Control: Inadequate Guidance Results in Duplicate Intelligence Production Efforts (GAO/NSIAD-92-153) Drug Control: Treatment Alternatives Program for Drug Offenders Needs Stronger Emphasis (GAO/GGD-93-61) Drug Treatment: Despite New Strategy, Few Federal Inmates Receive Treatment (GAO/HRD-91-116) Drug Use Measurement: Strengths, Limitations, and Recommendations for Improvement (GAO/PEMD-93-18) Drug War: Drug Enforcement Administration Staffing and Reporting in Southeast Asia (GAO/NSIAD-93-82) EEO at Justice: Progress Made but Underrepresentation Remains Widespread (GAO/GGD-91-8) Federal Jail Bedspace: Cost Savings and Greater Accuracy Possible in the Capacity Expansion Plan (GAO/GGD-92-141) Federal Judiciary: How the Judicial Conference Assesses the Need for More Judges (GAO/GGD-93-31) Federal Prisons: Inmate and Staff Views on Education and Work Training Programs (GAO/GGD-93-33) Federal Tax Deposit System: IRS Can Improve the Federal Tax Deposit System (GAO/AFMD-93-40) Financial Audit: IRS Significantly Overstated Its Accounts Receivable Balance (GAO/AFMD-93-42) Illegal Aliens: Despite Data Limitations, Current Methods Provide Better Population Estimates (GAO/PEMD-93-25) Immigration Control: Immigration Policies Affect INS Detention Efforts (GAO/GGD-92-85) Immigration Management: Strong Leadership and Management Reforms Needed to Address Serious Problems (GAO/GGD-91-28) Immigration Reform: Verifying the Status of Aliens Applying for Federal Benefits (GAO/HRD-88-7) Information Management: Immigration and Naturalization Service Lacks Ready Access to Essential Data (GAO/IMTEC-90-75) Justice Automation: Tighter Computer Security Needed (GAO/IMTEC-90-69) Money Laundering: State Efforts To Fight It Are Increasing But More Federal Help Is Needed (GAO/GGD-93-1) National Crime Information Center: Legislation Needed to Deter Misuse of Criminal Justice Information (GAO/T-GGD-93-41) National Fine Center: Expectations High, but Development Behind Schedule (GAO/GGD-93-95) Office of Justice Programs: Discretionary Grants Reauthorization (GAO/GGD-93-23) Prison Inmates: Better Plans Needed Before Felons Are Released (GAO/GGD-93-92) Resolution Trust Corporation: Additional Monitoring of Basic Ordering Agreements Needed (GAO/GGD-93-107) Resolution Trust Corporation: Affordable Multifamily Housing Program Has Improved but More Can Be Done (GAO/GGD-92-137) Resolution Trust Corporation: A More Flexible Contracting-Out Policy Is Needed (GAO/GGD-91-136) Resolution Trust Corporation: Assessing Portfolio Sales Using Participating Cash Flow Mortgages (GAO/GGD-92-33BR) Resolution Trust Corporation: Asset Pooling and Marketing Practices Add Millions to Contract Costs (GAO/GGD-93-2) Resolution Trust Corporation: Better Assurance Needed That Contractors Meet Fitness and Integrity Standards (GAO/GGD-93-127) Resolution Trust Corporation: Controls Over Asset Valuations Do Not Ensure Reasonable Estimates (GAO/GGD-93-80) Resolution Trust Corporation: Effectiveness of Auction Sales Should Be Demonstrated (GAO/GGD-92-7) Resolution Trust Corporation: Loan Portfolio Pricing and Sales Process Could Be Improved (GAO/GGD-93-116) Resolution Trust Corporation: 1992 Washington/Baltimore Auctions Planned and Managed Poorly (GAO/GGD-93-115) Resolution Trust Corporation: Performance Assessment for 1991 (GAO/T-GGD-92-14) Resolution Trust Corporation: Progress Under Way in Minority and Women Outreach Program for Outside Counsel (GAO/GGD-91-121) Resolution Trust Corporation: Subcontractor Cash Management Practices Violate Policy and Reduce Income (GAO/GGD-93-7) Resolution Trust Corporation: Survey Results on RTC’s Communication and Real Estate Marketing (GAO/GGD-92-134BR) Resolution Trust Corporation: Timelier Action Needed to Locate Missing Asset Files (GAO/GGD-93-76) Sentencing Guidelines: Central Questions Remain Unanswered (GAO/GGD-92-93) Tax Administration: IRS’ Management of Seized Assets (GAO/T-GGD-92-65) Thrift Failures: Actions Needed to Stabilize RTC’s Professional Liability Program (GAO/GGD-93-105) U.S. Attorneys: Better Models Can Reduce Resource Disparities Among Offices (GAO/GGD-91-39) U.S. Customs Service: Limitations in Collecting Harbor Maintenance Fees (GAO/GGD-92-25) War on Drugs: Federal Assistance to State and Local Drug Enforcement (GAO/GGD-93-86) In 1993, the federal government spent about $150 billion in pay and benefits for over 3 million civilian employees. The effectiveness of federal agencies in achieving their missions depends largely on the quality, the motivation, and the performance of these employees. Recruiting, hiring, training, and managing a quality work force is the foundation of effective governance. In recent years, several significant actions have been taken on the basis of our recommendations. In our February 1992 report, we noted that the Office of Personnel Management (OPM) had established a review process to ensure that conversions of appointments, from political to career, adhered to merit system principles but that not all of OPM’s examining offices had implemented the process. Consequently, conversions whose propriety was questionable had not been reviewed by OPM. We recommended that the OPM Director ensure that (1) procedures were established in all of its examining offices to identify and review conversions within their jurisdictions and (2) the review process be revised to include the pre-appointment review of conversions at agencies that OPM had delegated examining authority to. On February 21, 1992, OPM implemented our recommendations, providing greater assurance that career appointments granted political appointees were based on merit principles. In July 1991 and February 1992, we reported that stronger controls were needed to reduce the risk of fraud and abuse and administrative costs in the Federal Employees Health Benefits Program (FEHBP). Program funds paid to fee-for-service health insurance plans are highly vulnerable to fraud and abuse and, in 1988, FEHBP paid an operational expense ratio that was 51 percent higher than the average ratio for other large insured health benefits programs we reviewed and 89 percent higher than the average ratio for programs that were self-insured. We have made numerous recommendations to help OPM strengthen controls over FEHBP. To strengthen controls against fraud and abuse, OPM developed minimum internal control and quality assurance standards for financial claims and processing controls, which will become formal parts of the 1994 service charge negotiations. Moreover, it is working with the Office of Management and Budget on procedures to implement cost accounting standards in the program and intends to make them effective with the 1995 contracts. OPM also now requires carriers to submit semiannual reports on the number and the status of fraud and abuse cases pursued and is continuing to work with carriers and its Office of the Inspector General to implement a sanctions program. Finally, in February 1993, OPM started an activity to prevent payments on contracts between debarred providers and carriers. Also, as a result of our recommendations, OPM negotiated administrative expense cuts with the fee-for-service carriers for 1993 and the next 2 contract years. The administrative expense reductions represent permanent decreases in the administrative expense bases such that, over the 3 years, FEHBP will save $43.3 million. In a report assessing the services job seekers were receiving at OPM’s Federal Job Information Centers, we recommended several steps OPM should take to give the Centers greater customer focus. Consistent with our recommendations, on September 14, 1992, OPM reported to the Chairs of the cognizant congressional subcommittees that several steps had been taken at some Centers in response to our recommendations. These included (1) expanding Centers’ hours to coincide with the hours of the buildings in which they were located, (2) ensuring there were enough chairs and tables to accommodate job seekers, (3) improving telephone access, and (4) creating an Employment Information Task Force to examine the staffing situation along with other issues addressed in our report. In our November 1992 report discussing opportunities to lower drug testing program costs, we recommended that the Secretary of Health and Human Services reduce the required rate of blind proficiency testing performed by agencies. The Department of Health and Human Services (HHS) agreed with this and, in January 1993, published proposed revisions to the mandatory guidelines that would reduce the requirement for agencies to maintain a minimum of 10-percent blind samples to 3 percent. According to HHS officials, this change could significantly reduce the costs associated with maintaining a blind sample program without affecting the ability to monitor a laboratory’s performance. Final issuance of the revised guidelines is expected for late 1993. In a governmentwide review of expert and consultant appointments, we found that 35 percent were inappropriate. (GAO/GGD-91-99) In 1991, we recommended that, to improve compliance with federal requirements governing the expert and consultant appointing authority, OPM revise Federal Personnel Manual (FPM) guidance to (1) define the meaning of operating duties, (2) give examples of nonoperating duties that experts and consultants may perform, and (3) specify that experts and consultants may not do routine and continuous duties that are the responsibility of regular employees. OPM agreed with our recommendations and, on January 4, 1993, revised guidance through FPM Letter 304-4. If the American people are to receive the high-quality government services they deserve, continuing attention needs to be given to the manner in which federal employees are managed. Improvements in the management of federal human resources can yield substantial improvements to government programs. We have made numerous recommendations to OPM and other agencies to improve the quality of the federal work force. The following are areas in which we believe further action or monitoring is needed to adequately respond to our recommendations. Although federal agencies are diverse and have different missions, they are required to use the same general performance management system. A general framework for federal performance management systems seems appropriate. Agencies believe that, within this framework, however, they should be able to tailor specific elements to reflect such factors as their missions, organizational structure, and the way their work is done. The lack of sufficient flexibility for agencies to design their own performance management systems has created problems in managing and improving employee performance. As suggested in our February 1993 report, we believe that when the Congress considers legislation concerning the Performance Management and Recognition System, extending Pay-for-Performance to General Schedule employees, and other performance management legislation, it should consider giving agencies the flexibility needed to tailor performance management systems to their own work environments. (GAO/GGD-93-57) Data on the gender, race, and national origin of applicants for federal employment—known as applicant flow data—are not adequately collected. During the early 1980s, OPM and the Equal Employment Opportunity Commission (EEOC) required agencies to collect the data using an OPM form. However, authority to use the form expired and OPM and EEOC no longer require agencies to collect applicant flow data. In 1989, EEOC proposed a directive that would have required agencies to collect applicant flow data but, at OPM’s request, did not issue the proposed directive. In our October 1991 testimony, we recommended that OPM, in cooperation with EEOC, examine options for collecting and analyzing applicant flow data and take prompt appropriate action. (GAO/T-GGD-92-2) Under court order, OPM is collecting and analyzing applicant flow data from persons who take the Administrative Careers With America examination. OPM data show, however, that this examination produces a small percentage of all federal new hires. Additional stages toward automating the hiring process include other examinations and government hiring authorities that are planned. The extent to which applicant flow data will be collected during these additional stages is under consideration. As discussed in our December 1992 report, OPM is not providing sufficient oversight of the federal personnel system to ensure compliance with laws, rules, and regulations. Passage of the Civil Service Reform Act of 1978 allowed the government’s personnel system to become more decentralized and increased the ability of personnel officers to respond quickly and efficiently to line managers. It also increased the risk that federal personnel requirements will be misinterpreted, unknown, or ignored by those responsible for carrying them out. This can result in legal or merit system violations, inadequate agency mission support, and miscalculated payments. Although OPM is responsible for administering and protecting the federal personnel system, reduced staff and resources has forced it to depend on agencies to shoulder much of the responsibility. This would be reasonable if appropriate personnel management evaluation standards existed and were followed and if all agencies did personnel management evaluations regularly. In our December 1992 report, however, we stated that varying degrees of personnel management evaluation activity existed among 35 of the largest federal agencies and that OPM had not issued standards by which to adequately judge quality. (GAO/GGD-93-24) We believe that, to improve oversight of the federal personnel system, OPM needs to assess standards for evaluation systems, make changes where needed, and develop qualifications for evaluators and assess the training available to them. Acquisition Management: Implementation of the Defense Acquisition Workforce Improvement Act (GAO/NSIAD-93-129) AID Management: EEO Issues and Protected Group Underrepresentation Require Management Attention (GAO/NSIAD-93-13) AID Management: Strategic Management Can Help AID Face Current and Future Challenges (GAO/NSIAD-92-100) Alleged Lobbying Activities: Office for Substance Abuse Prevention (GAO/HRD-93-100) Apprenticeship Training: Administration, Use, and Equal Opportunity (GAO/HRD-92-43) Aviation Safety: Limited Success Rebuilding Staff and Finalizing Aging Aircraft Plan (GAO/RCED-91-119) Aviation Safety: Problems Persist in FAA’s Inspection Program (GAO/RCED-92-14) Customs Service and INS: Dual Management Structure for Border Inspections Should Be Ended (GAO/GGD-93-111) Customs Service: 1911 Act Governing Overtime Is Outdated (GAO/GGD-91-96) Department of Education: Long-Standing Management Problems Hamper Reforms (GAO/HRD-93-47) EEO at Justice: Progress Made but Underrepresentation Remains Widespread (GAO/GGD-91-8) Employee Conduct Standards: Some Outside Activities Present Conflict-of-Interest Issues (GAO/GGD-92-34) Employee Drug Testing: Opportunities Exist to Lower Drug-Testing Program Costs (GAO/GGD-93-13) Energy Management: Using DOE Employees Can Reduce Costs for Some Support Services (GAO/RCED-91-186) FAA Staffing: Improvements Needed in Estimating Air Traffic Controller Requirements (GAO/RCED-88-106) Federal Affirmative Action: Better EEOC Guidance and Agency Analysis of Underrepresentation Needed (GAO/GGD-91-86) Federal Affirmative Employment: Status of Women and Minority Representation in the Federal Workforce (GAO/T-GGD-92-2) Federal Employees’ Compensation Act: Need to Increase Rehabilitation and Reemployment of Injured Workers (GAO/GGD-92-30) Federal Employment: Displaced Federal Workers Can Be Helped by Expanding Existing Programs (GAO/GGD-92-86) Federal Employment: Inquiry Into Sexual Harassment Issues at Selected VA Medical Centers (GAO/GGD-93-119) Federal Employment: Poor Service Found at Federal Job Information Centers (GAO/GGD-92-116) Federal Health Benefits Program: Stronger Controls Needed to Reduce Administrative Costs (GAO/GGD-92-37) Federal Hiring: Does Veterans’ Preference Need Updating? (GAO/GGD-92-52) Federal Labor Relations: A Program in Need of Reform (GAO/GGD-91-101) Federal Lobbying: Federal Regulation of Lobbying Act of 1946 Is Ineffective (GAO/T-GGD-91-56) Federal Lobbying: Lobbying the Executive Branch (GAO/T-GGD-91-70) Federal Performance Management: Agencies Need Greater Flexibility in Designing Their Systems (GAO/GGD-93-57) Federal Personnel Management: OPM Reliance on Agency Oversight of Personnel System Not Fully Justified (GAO/GGD-93-24) Federal Recruiting and Hiring: Authority for Higher Starting Pay Useful but Guidance Needs Improvement (GAO/GGD-91-22) Federal Recruiting and Hiring: Making Government Jobs Attractive to Prospective Employees (GAO/GGD-90-105) Federal Workforce: Inappropriate Use of Experts and Consultants at Selected Civilian Agencies (GAO/GGD-91-99) Financial Disclosure: Implementation of Statute Governing Judicial Branch Personnel (GAO/GGD-93-85) Fraud and Abuse: Stronger Controls Needed in Federal Employees Health Benefits Program (GAO/GGD-91-95) General Services Administration: Actions Needed to Improve Protection Against Fraud, Waste, and Mismanagement (GAO/GGD-92-98) General Services Administration: Sustained Attention Required to Improve Performance (GAO/GGD-90-14) Government National Mortgage Association: Greater Staffing Flexibility Needed to Improve Management (GAO/RCED-93-100) Management of HHS: Using the Office of the Secretary to Enhance Departmental Effectiveness (GAO/HRD-90-54) Management of VA: Improved Human Resource Planning Needed to Achieve Strategic Goals (GAO/HRD-93-10) Managing Human Resources: Greater OPM Leadership Needed to Address Critical Challenges (GAO/GGD-89-19) Managing IRS: Actions Needed to Assure Quality Service in the Future (GAO/GGD-89-1) National Labor Relations Board: Action Needed to Improve Case-Processing Time at Headquarters (GAO/HRD-91-29) National Science Foundation: Better Guidance on Employee Book Writing Could Help Avoid Ethics Problems (GAO/GGD-93-8) Nuclear Security: DOE’s Progress on Reducing Its Security Clearance Work Load (GAO/RCED-93-183) Personnel Practices: Propriety of Career Appointments Granted Former Political Appointees (GAO/GGD-92-51) Personnel Practices: Retroactive Appointments and Pay Adjustments in the Executive Office of the President (GAO/GGD-93-148) Personnel Practices: Schedule C and Other Details to the Executive Office of the President (GAO/GGD-93-14) Personnel Security: Efforts by DOD and DOE to Eliminate Duplicative Background Investigations (GAO/RCED-93-23) Railroad Safety: FRA’s Staffing Model Cannot Estimate Inspectors Needed for Safety Mission (GAO/RCED-91-32) Senior Executive Service: Reasons the Candidate Development Program Has Not Produced More SES Appointees (GAO/GGD-88-47) Social Security Administration: Stable Leadership and Better Management Needed To Improve Effectiveness (GAO/HRD-87-39) State Department: Management Weaknesses at the U.S. Embassies in Panama, Barbados, and Grenada (GAO/NSIAD-93-190) State Department: Management Weaknesses at the U.S. Embassy in Mexico City, Mexico (GAO/NSIAD-93-88) State Department: Need to Ensure Recovery of Overseas Medical Expenses (GAO/NSIAD-92-277) Tax Administration: Better Training Needed for IRS’ New Telephone Assistors (GAO/GGD-91-83) Tax Administration: Improved Staffing of IRS’ Collection Function Would Increase Productivity (GAO/GGD-93-97) Tax Administration: IRS Should Expand Financial Disclosure Requirements (GAO/GGD-92-117) Tax Administration: Need for More Management Attention to IRS’ College Recruitment Program (GAO/GGD-90-32) The Changing Workforce: Comparison of Federal and Nonfederal Work/Family Programs and Approaches (GAO/GGD-92-84) Transition From School to Work: Linking Education and Worksite Training (GAO/HRD-91-105) UNESCO: Status of Improvements in Management Personnel, Financial, and Budgeting Practices (GAO/NSIAD-92-172) U.S. Attorneys: Better Models Can Reduce Resource Disparities Among Offices (GAO/GGD-91-39) U.S. Department of Agriculture: Need for Improved Workforce Planning (GAO/RCED-90-97) U.S. Department of Agriculture: Strengthening Management Systems to Support Secretarial Goals (GAO/RCED-91-49) VA Health Care: Inadequate Enforcement of Federal Ethics Requirements at VA Medical Centers (GAO/HRD-93-39) VA Health Care: Problems in Implementing Locality Pay for Nurses Not Fully Addressed (GAO/HRD-93-54) Veterans Affairs IRM: Stronger Role Needed for Chief Information Resources Officer (GAO/IMTEC-91-51BR) Whistleblower Protection: Agencies’ Implementation of the Whistleblower Statutes Has Been Mixed (GAO/GGD-93-66) Whistleblower Protection: Determining Whether Reprisal Occurred Remains Difficult (GAO/GGD-93-3) Workplace Accommodation: EPA’s Alternative Workspace Process Requires Greater Managerial Oversight (GAO/GGD-92-53) A public and political consensus recently has emerged that fundamental changes are needed in the way the federal government manages. Both the September 1993 report of the Vice President’s National Performance Review and the Government Performance and Results Act of 1993 drew heavily on our work in analyzing federal management and the need for change. We have a long record of work aimed at improving the management of the federal government. For example, since 1982, we have been doing broad reviews of the management processes and systems of major federal agencies. Our goals have been to improve agencies’ management and facilitate congressional oversight and action on management issues. These reviews draw upon and complement our more customary evaluations of individual programs within agencies. We have completed 48 general management reviews, covering 23 agencies, during the last 10 years. These reviews have shown that agencies need to develop strategic plans and clearly articulated goals and program objectives. Agencies also need better financial and information systems to support managers’ decisionmaking. The general management reviews have further demonstrated that agencies need to make an aggressive commitment to improving accountability and internal controls. In the past year, we continued to focus on the need for agencies to work with congressional and other stakeholders to define their missions and desired program outcomes, develop measures of program performance, and align their management and administrative support functions to support program results. We assisted the Senate Committee on Governmental Affairs in drafting and marking up the performance measurement legislation that became the Government Performance and Results Act. Since the legislation has passed, we have met with agency officials in a number of forums to explain the requirements of the act, program performance measurement, and the implications for program management and audit and evaluation efforts. We continued to closely monitor the progress of Census Bureau plans for the 2000 census and provided testimony to the Congress so that it might better understand and influence the critical early decisions that determine the cost and the accuracy of the next census. We warned in March 1993 testimony that a lack of Bureau progress in redesigning the 2000 census jeopardized the prospects of reform. We issued several reports and testimonies on economic statistical issues. We testified on the limitations of U.S. statistics on trade with Mexico. We issued a report on the status of the 1992 Agriculture and Economic Censuses and future challenges facing the 1997 Agriculture Census. We also issued a report that included no evidence that estimates of the Gross Domestic Product for the first quarter of 1991 had been manipulated for political purposes. This latter report also discussed statistical questions and issues in measuring employment, personal income and the Gross Domestic Product. We will continue to develop a body of work on economic statistical issues and the organization and the leadership of the federal statistical system as a whole. Our management work consistently has found that the long-standing management problems confronting the federal government will require long-term and concerted attention by the senior leadership in the agencies. The following key open recommendations are from our most recently completed general management reviews. These recommendations deserve priority consideration and are described both in the section below and in the appropriate substantive issue area section. The Department of Education, charged with managing the federal investment in education and leading the long-term effort to improve education, lacks a clear management vision of how to best marshal its resources to effectively achieve its mission. The Department has no systematic processes for planning, organizing, or monitoring for results and quality improvement. The Department’s major management systems for information, financial, and human resources management also need attention. In May 1993, we recommended a series of actions that the Department should take to address management weaknesses. Specifically, we recommended that the Secretary (1) articulate a strategic management vision demonstrating how its management infrastructure would be developed to support its missions and secretarial policy priorities; (2) adopt a strategic management process for setting clear goals and priorities, measuring progress toward those goals, and ensuring accountability for attaining them; (3) enhance management leadership throughout the Department and strengthen agency culture; and (4) create for information, financial, and human resources management, strategic visions, and strategic plans that are integrated with the Department’s overall strategic management process. In response to our recommendations, the Department has begun to implement a strategic planning process. Staff have also been meeting weekly to establish a framework for implementing such initiatives as the national goals legislation. The Department is refining its financial management strategic plan and redesigning its core financial management systems and has begun implementing its strategic and tactical plans for information technology resources. The Department has established a committee to address problems in data collection and dissemination and is working with the National Academy of Public Administration to determine what information is useful in accomplishing programs goals and objectives. The Department has formed task forces to address recruitment issues and to study the use of training funds and to make recommendations to ensure adequate support for training across the Department. (GAO/HRD-93-47) Our general management review of the Customs Service found that Customs could not adequately ensure that it was meeting its responsibilities to combat unfair foreign trade practices or protect the public from unsafe goods because of interrelated problems in its management culture, including weak strategic planning and outdated organizational structures. In September 1992, we recommended that Customs institute a strategic management process to set priorities for its trade enforcement strategy, establish measurable performance objectives, and monitor progress toward achieving them. We also recommended that Customs evaluate the adequacy of its current headquarters organizational structure and its relationship to the new trade enforcement strategy that it would develop. In addition, we recommended that the Congress remove existing legislative provisions prohibiting Customs from planning changes to its field structure. Customs has a number of actions in process that are responsive to our recommendations. It has developed a draft 5-year strategic plan, and it plans to develop measures to assess performance against goals. It has formed a task force to establish a statistically valid approach to assessing compliance with the trade laws. The preliminary results of the task force’s work confirm our findings that Customs has a greater noncompliance problem than it realized. Customs sought and obtained congressional repeal of the legislative provisions prohibiting it from planning changes to its field structure. It now has formed a task force to develop a proposal for a new organizational structure. (GAO/GGD-92-123) In a series of reports on the management of the U.S. Department of Agriculture (USDA), we noted structural problems that, if addressed, could lead to greater efficiency, effectiveness, and cost savings. A key issue is the independence of the major component agencies of USDA, each established in response to a separate legislative mandate. Because these agencies have historically established their own information, financial, and human resources management systems to comply with legislative mandates, efficiencies have not been achieved departmentwide. With these systems, the Department is data rich but information poor, which makes it difficult for the Secretary to make informed decisions. Furthermore, weaknesses in financial management systems and internal and accounting controls substantially increase the risk of mismanagement, fraud, waste, and abuse in Department programs. We made a number of recommendations specific to departmental structures and strategies that would result in needed improvement. We also recommended that farm agencies’ field structures be given a major overhaul; management of cross-cutting agricultural issues be improved; management systems—financial, informational, and human resource—be strengthened; and USDA be revitalized to meet new challenges and increased responsibilities in nutrition, international trade, and resource conservation issues. Recent progress toward streamlining the USDA field structure is very encouraging, and cost savings should be significant. In September 1993, Agriculture Secretary Mike Espy announced a plan for closing some farm agency offices and consolidating farm agencies into a single farm agency. He also announced a plan to streamline headquarters. (GAO/IMTEC-93-20, GAO/RCED-91-49, GAO/RCED-91-41, and GAO/RCED-91-9) As part of our management review at the Agency for International Development (AID), we reported in March 1992 that a strategic management plan could help AID focus on an agencywide direction and address its key issues. New programs and approaches introduced by each Administrator, added to ongoing activities and congressional directives, have forced AID to address so many objectives that the agency has no clear priorities or meaningful direction. With the dissolution of the Warsaw Pact and the demise of the Soviet Union, as well as other dramatic global changes, the rationale for foreign aid has shifted. Without a clear vision of what AID should be doing and why, AID’s efforts to reorganize, focus its programs, plan for future work force needs, measure program performance, and implement major changes in financial and management information systems may be futile. We developed the elements of a strategic planning and management process framework for federal agencies and recommended in our report that AID establish such a process. It should enable AID to develop an agencywide direction, select effective management strategies to achieve this direction and address critical issues, assign accountability and monitor feedback, and ensure that its direction continues beyond one Administrator’s tenure. AID responded favorably to our conclusions and recommendations on strategic planning and management and proposed a two-phased approach. Although AID has begun some steps in the strategic management process, it has not yet issued a detailed action plan for implementation nor has it released the results of its initial efforts. In our final general management review report, we developed some of these issues further and reported that (1) the diffusion of the foreign aid program had constrained AID management, (2) key groups lacked consensus on AID’s goals and priorities, (3) lack of central controls had resulted in a fragmented and ineffective organization, and (4) AID had not adequately managed the changes in its overseas work force. We made numerous recommendations to the AID Administrator designed to give focus to the foreign aid program, bring AID’s management system into balance within the agency’s decentralized structure, and improve work force planning and management processes. The new AID Administrator responded favorably to our conclusions and is taking steps to implement them. For example, a proposed reorganization will address the need for clear responsibility and authority. (GAO/NSIAD-92-100 and GAO/NSIAD-93-106) AID Management: Strategic Management Can Help AID Face Current and Future Challenges (GAO/NSIAD-92-100) Asset Forfeiture: Improved Guidance Needed for Use of Shared Assets (GAO/GGD-92-115) Asset Forfeiture: Noncash Property Should Be Consolidated Under the Marshals Service (GAO/GGD-91-97) Customs Service and INS: Dual Management Structure for Border Inspections Should Be Ended (GAO/GGD-93-111) Customs Service: Trade Enforcement Activities Impaired by Management Problems (GAO/GGD-92-123) Decennial Census: 1990 Results Show Need for Fundamental Reform (GAO/GGD-92-94) Department of Education: Long-Standing Management Problems Hamper Reforms (GAO/HRD-93-47) Department of Energy: Better Information Resources Management Needed to Accomplish Missions (GAO/IMTEC-92-53) Department of Energy: Management Problems Require a Long-Term Commitment to Change (GAO/RCED-93-72) DOE Management: Better Planning Needed to Correct Records Management Problems (GAO/RCED-92-88) Education Issues (GAO/OCG-93-18TR) Energy Management: Contract Audit Problems Create the Potential for Fraud, Waste, and Abuse (GAO/RCED-92-41) Energy Policy: Changes Needed to Make National Energy Planning More Useful (GAO/RCED-93-29) Environmental Protection Agency: Protecting Human Health and the Environment Through Improved Management (GAO/RCED-88-101) Federal Employment: Poor Service Found at Federal Job Information Centers (GAO/GGD-92-116) Federal Personnel Management: OPM Reliance on Agency Oversight of Personnel System Not Fully Justified (GAO/GGD-93-24) Federal Workforce: Inappropriate Use of Experts and Consultants at Selected Civilian Agencies (GAO/GGD-91-99) Financial Management: Customs Needs to Establish Adequate Accountability and Control Over Its Resources (GAO/AFMD-92-30) Financial Management: The U.S. Mint’s Accounting and Control Problems Need Management Attention (GAO/AFMD-89-88) General Services Administration: Sustained Attention Required to Improve Performance (GAO/GGD-90-14) Government Civilian Aircraft: Central Management Reforms Are Encouraging but Require Extensive Oversight (GAO/GGD-89-86) Immigration Management: Strong Leadership and Management Reforms Needed to Address Serious Problems (GAO/GGD-91-28) Information Management: Immigration and Naturalization Service Lacks Ready Access to Essential Data (GAO/IMTEC-90-75) Management of HHS: Using the Office of the Secretary to Enhance Departmental Effectiveness (GAO/HRD-90-54) Management of VA: Improved Human Resource Planning Needed to Achieve Strategic Goals (GAO/HRD-93-10) Management Review: Follow-Up on the Management Review of the Defense Logistics Agency (GAO/NSIAD-88-107) Managing Human Resources: Greater OPM Leadership Needed to Address Critical Challenges (GAO/GGD-89-19) Managing IRS: Actions Needed to Assure Quality Service in the Future (GAO/GGD-89-1) Managing IRS: Important Strides Forward Since 1988 but More Needs to Be Done (GAO/GGD-91-74) Medicaid: Ensuring that Noncustodial Parents Provide Health Insurance Can Save Costs (GAO/HRD-92-80) National Archives: A Review of Selected Management Issues (GAO/AFMD-89-39) Personnel Practices: Propriety of Career Appointments Granted Former Political Appointees (GAO/GGD-92-51) Social Security Administration: Stable Leadership and Better Management Needed To Improve Effectiveness (GAO/HRD-87-39) Tax Administration: Congress Needs More Information on Compliance Initiative Results (GAO/GGD-92-118) Tax Administration: Opportunities to Further Improve IRS’ Business Review Process (GAO/GGD-92-125) Thrift Failures: Actions Needed to Stabilize RTC’s Professional Liability Program (GAO/GGD-93-105) U.S. Department of Agriculture: Farm Agencies’ Field Structure Needs Major Overhaul (GAO/RCED-91-9) U.S. Department of Agriculture: Improving Management of Cross-Cutting Agricultural Issues (GAO/RCED-91-41) U.S. Department of Agriculture: Interim Report on Ways to Enhance Management (GAO/RCED-90-19) U.S. Department of Agriculture: Need for Improved Workforce Planning (GAO/RCED-90-97) U.S. Department of Agriculture: Strengthening Management Systems to Support Secretarial Goals (GAO/RCED-91-49) VA Health Care: Inadequate Controls Over Scarce Medical Specialist Contracts (GAO/HRD-92-114) Our work provided information, analyses, and recommendations to the Congress and regulator agencies on financial services industry reform, regulation, and oversight. We analyzed (1) emerging issues, financial health of various segments of the financial services sector, and gaps in regulatory coverage; (2) existing regulatory practices to see if they worked as intended; and (3) the continued appropriateness of federal policies governing financial institutions and markets. We continued to advise congressional leadership—through reports, testimonies, and briefings—on the implementation of key provisions of banking reform legislation that were intended to strengthen the banking system and reduce taxpayers’ exposure to losses. Our work has also helped enhance understanding and congressional oversight of the regulatory burden issue and the regulators’ efforts to address it. Through reports and recommendations on financial markets issues, we have improved the disclosure of information on government and private securities transactions and further upgraded the protection afforded investors. This work and other work designed to improve capital requirements and strengthen regulation of financial services industries have resulted in a stronger financial system and a strengthened regulatory structure to protect the American public. In our report on credit unions, we recommended some 50 regulatory and legislative actions to ensure the future soundness of the industry, including changes to (1) maintain safe and sound insurance operations, (2) upgrade the regulation and supervision of credit unions, and (3) clarify the “common bond” characteristic distinguishing credit unions from banks and thrifts. The National Credit Union Administration has issued regulations to address many of the recommendations; there has not yet been action on our recommendations to the Congress. (GAO/GGD-91-85) We reported that the Federal Deposit Insurance Corporation’s (FDIC) Liquidation Asset Management Information System was not adequately supporting the Division of Liquidation’s needs. We recommended that, to correct the problem, FDIC develop a system that would meet the Division’s requirements for managing loan and for strengthening real estate assets. FDIC is developing an improved system. (GAO/IMTEC-93-08) In a report on the U.S. government securities market, we recommended that the Congress (1) extend the Department of the Treasury’s rulemaking authority, subject to a sunset provision; (2) authorize Treasury to adopt rules as needed over the sales practices of government securities brokers and dealers; and (3) require screen brokers to make transaction information available to market participants on a real-time basis. We also recommended that the Congress extend Securities Investor Protection Corporation (SIPC) insurance coverage to customer accounts in specialized government securities dealers. Legislation is pending before the Congress that would implement these changes. (GAO/GGD-90-114) Our report on investment advisers showed that regulatory oversight of advisers was very weak. We recommended that the Congress clarify its regulatory intent for the investment advisers program by either strengthening it to meet some minimal standard or repealing requirements for federal regulation of advisers. Legislation to strengthen the program has been introduced during past sessions of the Congress. (GAO/GGD-90-83) In a report on securities trading, we recommended that the Securities and Exchange Commission (SEC) closely monitor the development of the exchanges market linkage system. SEC is implementing such a system. (GAO/GGD-90-52) In our report on SEC’s EDGAR System, we recommended that the priority of users’ needs and system requirements be determined and that SEC set realistic project schedules. SEC is doing so. (GAO/IMTEC-92-85) In our report on security investor protection, we found that SIPC needed to periodically review the adequacy of its funding arrangement, improve its access to information, and speed its liquidations. We recommended SIPC and SEC improve each of the above. (GAO/GGD-92-109) In our report on the need to regulate additional financial activities of securities firms, we expressed concern about the unregulated financial activities of affiliated and holding companies of U.S. securities firms, especially given the collapse of Drexel Burnham Lambert. We recommended that SEC determine whether the overall risks posed by the unregulated financial activities of broker-dealer holding companies and affiliates warranted additional regulation or legislative changes. (GAO/GGD-92-70) Our report on international capital standards stated that the capital of securities firms was reduced when they traded in foreign securities that SEC had not recognized as being readily marketable. We recommended that SEC consider revising its capital rule to recognize more foreign markets and more foreign securities as readily marketable under SEC’s 1975 criteria and develop a mechanism to recognize additional foreign securities and markets as they develop. (GAO/GGD-92-41) Our report on penny stocks said that SEC needed to require the National Association of Securities Dealers (NASD) to develop a plan for examining the branch offices of penny stock broker-dealers. The plan should require all NASD districts to include a sampling plan to identify high-risk branches, establish the frequency of examinations, and determine the number of employees required to examine branches. NASD is preparing such a plan for SEC’s review. (GAO/GGD-93-59) Our testimony on market fragmentation recommended that SEC periodically monitor the effects of market fragmentation. SEC is considering this recommendation. (GAO/T-GGD-93-35) Asset Forfeiture: Improved Guidance Needed for Use of Shared Assets (GAO/GGD-92-115) Asset Management System: Liquidation of Failed Bank Assets Not Adequately Supported by FDIC System (GAO/IMTEC-93-8) Bank and Thrift Failures: FDIC and RTC Could Do More to Pursue Professional Liability Claims (GAO/T-GGD-92-42) Bank and Thrift Regulation: Improvements Needed In Examination Quality and Regulatory Structure (GAO/AFMD-93-15) Bank Examination Quality: FDIC Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-12) Bank Examination Quality: FRB Examinations and Inspections Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-13) Bank Examination Quality: OCC Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-14) Bank Regulation: Regulatory Impediments to Small Business Lending Should Be Removed (GAO/GGD-93-121) Credit Unions: Reforms for Ensuring Future Soundness (GAO/GGD-91-85) Financial Audit: Savings Association Insurance Fund’s 1991 and 1990 Financial Statements (GAO/AFMD-92-72) Funding Foreign Bank Examinations (GAO/GGD-93-35R) Investment Advisers: Current Level of Oversight Puts Investors at Risk (GAO/GGD-90-83) Penny Stocks: Regulatory Actions to Reduce Potential for Fraud and Abuse (GAO/GGD-93-59) Resolution Trust Corporation: Additional Monitoring of Basic Ordering Agreements Needed (GAO/GGD-93-107) Resolution Trust Corporation: Affordable Multifamily Housing Program Has Improved but More Can Be Done (GAO/GGD-92-137) Resolution Trust Corporation: A More Flexible Contracting-Out Policy Is Needed (GAO/GGD-91-136) Resolution Trust Corporation: Assessing Portfolio Sales Using Participating Cash Flow Mortgages (GAO/GGD-92-33BR) Resolution Trust Corporation: Asset Pooling and Marketing Practices Add Millions to Contract Costs (GAO/GGD-93-2) Resolution Trust Corporation: Better Assurance Needed That Contractors Meet Fitness and Integrity Standards (GAO/GGD-93-127) Resolution Trust Corporation: Controls Over Asset Valuations Do Not Ensure Reasonable Estimates (GAO/GGD-93-80) Resolution Trust Corporation: Effectiveness of Auction Sales Should Be Demonstrated (GAO/GGD-92-7) Resolution Trust Corporation: Loan Portfolio Pricing and Sales Process Could Be Improved (GAO/GGD-93-116) Resolution Trust Corporation: 1992 Washington/Baltimore Auctions Planned and Managed Poorly (GAO/GGD-93-115) Resolution Trust Corporation: Performance Assessment for 1991 (GAO/T-GGD-92-14) Resolution Trust Corporation: Progress Under Way in Minority and Women Outreach Program for Outside Counsel (GAO/GGD-91-121) Resolution Trust Corporation: Subcontractor Cash Management Practices Violate Policy and Reduce Income (GAO/GGD-93-7) Resolution Trust Corporation: Survey Results on RTC’s Communication and Real Estate Marketing (GAO/GGD-92-134BR) Resolution Trust Corporation: Timelier Action Needed to Locate Missing Asset Files (GAO/GGD-93-76) Securities and Exchange Commission: Delays in Processing Time-Sensitive Stock Filings (GAO/GGD-93-130) Securities and Exchange Commission: Effective Development of the EDGAR System Requires Top Management Attention (GAO/IMTEC-92-85) Securities Firms: Assessing the Need to Regulate Additional Financial Activities (GAO/GGD-92-70) Securities Investor Protection: The Regulatory Framework Has Minimized SIPC’s Losses (GAO/GGD-92-109) Securities Markets: Challenges to Harmonizing International Capital Standards Remain (GAO/GGD-92-41) Securities Markets: SEC Actions Needed to Address Market Fragmentation Issues (GAO/T-GGD-93-35) Securities Trading: SEC Action Needed to Address National Market System Issues (GAO/GGD-90-52) Thrift Examination Quality: OTS Examinations Do Not Fully Assess Thrift Safety and Soundness (GAO/AFMD-93-11) Thrift Failures: Actions Needed to Stabilize RTC’s Professional Liability Program (GAO/GGD-93-105) Unemployment Insurance: Trust Fund Reserves Inadequate (GAO/HRD-88-55) U.S. Government Securities: More Transaction Information and Investor Protection Measures Are Needed (GAO/GGD-90-114) Our work in this area focuses on three of the government’s largest business entities: the General Services Administration (GSA), the Resolution Trust Corporation (RTC), and the U.S. Postal Service. This area also encompasses responsibilities for many other federal entities, such as the Smithsonian Institution, the National Archives, parts of the Department of the Treasury, and the D.C. Government. Ultimately, the policies, operations, and employees of the three large entities have an impact not only on meeting their own mission goals but on the capability of other federal agencies to meet theirs. Our work has directly influenced GSA and the congressional leadership to rethink and change GSA’s role as a central management agency and a monopoly provider of services to federal agencies. Numerous reports and testimonies, which culminated in our Transition Series report, highlighted the need for GSA to manage in a more businesslike manner its public buildings and supply distribution operations and called for improved congressional oversight. Two recently issued reports drove this point home in that they showed how millions of dollars could be saved if GSA had more orders shipped directly to the customer agencies from suppliers rather than from its depots and eliminated repeat poor-performing vendors from the supply system. Because of high congressional interest, we have given special attention to federal asset management and disposition activities of RTC in liquidating assets from failed savings and loan institutions. We have focused our efforts on RTC’s sales strategies, contracting activities, and the affordable housing and minority- and women-owned business programs. Through reports and frequent testimony, we have fostered considerable positive change in the organization and management of these activities. We will continue to try to improve the way RTC carries out its asset management responsibilities—specifically, we believe that it should consolidate individual agency activities. During the coming year, we will also begin to focus on the asset management and disposition activities of the Federal Deposit Insurance Corporation. Key efforts at the U.S. Postal Service have focused on the need for an appropriate response to rapidly changing electronic communication technology and an increasingly competitive market for postal services. In reports and testimony in 1992, we directed congressional and Postal Service attention to the limited progress in controlling labor costs through the automation of mail processes and the factors such as outmoded pricing policies hindering Postal Service efforts to compete effectively. We will continue to focus on the competitive challenges the Postal Service faces and the success of its efforts to improve the quality of its services, motivate employees, improve labor and management relations, and generate and protect revenue. GSA recognized the potential for increasing direct delivery and is developing a plan to test the recommendation in the marketplace. GSA also is establishing an interagency committee of supply management personnel to evaluate current depot operations and participate in developing the most cost-effective supply system. Although these are worthwhile first steps, no substantive action has been completed and we thus cannot assess the adequacy of these efforts. (GAO/GGD-93-32) GSA acknowledged that it had had difficulty with vendors who had failed to perform as quality contractors. GSA concurred in the recommendations to remove poor-performing vendors from the supply system and provided information on various initiatives it has planned or under way to implement them. But, it is too early to determine how these new initiatives will have on reducing GSA’s existing vulnerability to using repeat poor-performing vendors. (GAO/GGD-93-34) Although RTC requires its asset management contractors to open interest-bearing operating accounts to pay asset management expenses, there is no such requirement for property management subcontractors. Our analysis of the bank accounts managed by 14 subcontractors showed that only 1 had opened an interest-bearing account. If the other 13 had opened interest-bearing accounts, RTC would have earned approximately $111,000 in interest. If the more than 1,600 property management subcontractors have not established interest-bearing accounts, the amount of additional interest income foregone by RTC could be significant. In October 1992, we recommended that RTC revise its policy and asset management contracts to require that property management subcontractors establish interest-bearing operating accounts for RTC assets with the interest accruing to RTC. (GAO/GGD-93-7) The Postal Reorganization Act of 1970 established criteria for setting postal rates at a time when the Postal Service had less competition than it faces now. Since passage of the 1970 act, the Postal Service’s competitive position has eroded, especially in the parcel post and overnight mail markets. We recommended that, because of the Postal Service’s increasingly competitive environment and the need for greater pricing flexibility, the Congress reexamine the criteria used in setting postal rates to determine whether the criteria were still valid in light of changing marketplace realties. We also said that, if the Congress intended that the Postal Service compete in the parcel post and express mail markets, it should consider a policy of granting discounts to customers on the basis of their mail volumes. No action has been taken on our recommendations. (GAO/GGD-92-49) In March 1993, we recommended that the Congress authorize the introduction of a new, well-designed $1 coin and eliminate the dollar note, a move that would save the government nearly $400 million per year over 30 years. We recommended that the Congress require the Secretary of the Treasury to designate an advocate of the new coin, who would promote it and respond to public inquiries and complaints. The Congress has not yet taken action on our recommendations. (GAO/GGD-93-56) Data Collection: Opportunities to Improve USDA’s Farm Costs and Returns Survey (GAO/RCED-92-175) Defense ADP: Corporate Information Management Must Overcome Major Problems (GAO/IMTEC-92-77) Disinfectants: EPA Lacks Assurance They Work (GAO/RCED-90-139) Environmental Enforcement: EPA Needs a Better Strategy to Manage Its Cross-Media Information (GAO/IMTEC-92-14) Environmental Protection Agency: Plans in Limbo for Consolidated Headquarters Space (GAO/GGD-93-84) FAA Information Resources: Agency Needs to Correct Widespread Deficiencies (GAO/IMTEC-91-43) Federal Buildings: Actions Needed to Prevent Further Deterioration and Obsolescence (GAO/GGD-91-57) Federal Buildings: Many Are Threatened by Earthquakes, but Limited Action Has Been Taken (GAO/GGD-92-62) Federal Formula Programs: Outdated Population Data Used to Allocate Most Funds (GAO/HRD-90-145) Federal Judiciary Space: Long-Range Planning Process Needs Revision (GAO/GGD-93-132) Federal Lands: Improvements Needed in Managing Short-Term Concessioners (GAO/RCED-93-177) Federal Lobbying: Lobbying the Executive Branch (GAO/T-GGD-91-70) Federal Office Space: Increased Ownership Would Result in Significant Savings (GAO/GGD-90-11) Federal Research: System for Reimbursing Universities’ Indirect Costs Should Be Reevaluated (GAO/RCED-92-203) Foreign Direct Investment: Assessment of Commerce’s Annual Report and Data Improvement Efforts (GAO/NSIAD-92-107) Foster Care: Children’s Experiences Linked to Various Factors; Better Data Needed (GAO/HRD-91-64) Freedom of Information: FDA’s Program and Regulations Need Improvement (GAO/HRD-92-2) FTS 2000 Overhead: GSA Should Reassess Contract Requirements and Improve Efficiency (GAO/IMTEC-92-59) General Services Administration: Actions Needed to Improve Protection Against Fraud, Waste, and Mismanagement (GAO/GGD-92-98) General Services Administration: Actions Needed to Stop Buying Supplies From Poor-Performing Vendors (GAO/GGD-93-34) General Services Administration: Distribution Center Modernization Was Mismanaged (GAO/GGD-92-71) General Services Administration: Efforts to Communicate About Asbestos Abatement Not Always Effective (GAO/GGD-92-28) General Services Administration: Increased Direct Delivery of Supplies Could Save Millions (GAO/GGD-93-32) General Services Administration: Sustained Attention Required to Improve Performance (GAO/GGD-90-14) Government Civilian Aircraft: Central Management Reforms Are Encouraging but Require Extensive Oversight (GAO/GGD-89-86) Gross Domestic Product: No Evidence of Manipulation in First Quarter 1991 Estimates (GAO/GGD-93-58) GSA’s Computer Security Guidance (GAO/AIMD-93-7R) Illegal Aliens: Despite Data Limitations, Current Methods Provide Better Population Estimates (GAO/PEMD-93-25) Immigration Management: Strong Leadership and Management Reforms Needed to Address Serious Problems (GAO/GGD-91-28) Managing IRS: Important Strides Forward Since 1988 but More Needs to Be Done (GAO/GGD-91-74) Multiple Award Schedule Contracting: Changes Needed in Negotiation Objectives and Data Requirements (GAO/GGD-93-123) National Archives: A Review of Selected Management Issues (GAO/AFMD-89-39) Occupational Safety & Health: Assuring Accuracy in Employer Injury and Illness Records (GAO/HRD-89-23) One-Dollar Coin: Reintroduction Could Save Millions if Properly Managed (GAO/GGD-93-56) Paperwork Reduction: Agency Responses to Recent Court Decisions (GAO/PEMD-93-5) Patent and Trademark Office: Key Processes for Managing Automated Patent System Development Are Weak (GAO/AIMD-93-15) Postal Service: Service Impact of South Dakota Mail Facility Not Fully Recognized (GAO/GGD-93-62) Radon Testing in Federal Buildings Needs Improvement and HUD’s Radon Policy Needs Strengthening (GAO/T-RCED-91-48) Regulatory Flexibility Act: Inherent Weaknesses May Limit Its Usefulness for Small Governments (GAO/HRD-91-16) Social Security Administration: Stable Leadership and Better Management Needed To Improve Effectiveness (GAO/HRD-87-39) Social Security: Status and Evaluation of Agency Management Improvement Initiatives (GAO/HRD-89-42) Tax Administration: Federal Agencies Should Report Service Payments Made to Corporations (GAO/GGD-92-130) Telecommunications: Concerns About Competition in the Cellular Telephone Service Industry (GAO/RCED-92-220) Treasury Automation: Automated Auction System May Not Achieve Benefits or Operate Properly (GAO/IMTEC-93-28) U.S. Government Securities: More Transaction Information and Investor Protection Measures Are Needed (GAO/GGD-90-114) U.S. Postal Service: Pricing Postal Services in a Competitive Environment (GAO/GGD-92-49) Weather Forecasting: Important Issues on Automated Weather Processing System Need Resolution (GAO/IMTEC-93-12BR) Welfare Benefits: States Need Social Security’s Death Data to Avoid Payment Error or Fraud (GAO/HRD-91-73) Our work in this area has provided information and analyses directed at (1) enhancing efforts to ensure compliance with the country’s tax laws, (2) assessing the progress of the Internal Revenue Service (IRS) in modernizing its tax-processing system, (3) increasing collection of IRS’ accounts receivable, (4) revising the tax laws to ease taxpayer burden and promote more effective and equitable tax subsidies, and (5) improving the ability of IRS to effectively manage its tax administration activities. We suggested ways that IRS could reduce individual taxpayers’ overstatement of real estate tax deductions and improve voluntary compliance. We also recommended that IRS not abandon a long-used compliance measurement program until a suitable substitute could be developed. We recommended, and IRS agreed, that IRS start requiring corporations to report their accumulated net operating losses from past tax years to offset taxable income in other tax years. Having this information will improve revenue estimates as well as IRS’ compliance programs. We recommended that, to reduce the growing IRS accounts receivable, IRS examine collection methods of private companies and local governments and develop a plan to deploy its collection staff to maximize the assessment and the collection of taxes. In monitoring IRS’ Tax Systems Modernization project, we concluded generally that IRS had progressed more slowly than expected in completing steps basic to successful modernization, such as planning for its business reorganization, developing detailed security and telecommunications requirements, and addressing related human resource implications. We also recommended that, because of significant slippage in implementation schedules, IRS reevaluate the utility of certain short-term computer projects. We also reported that the IRS’ electronic filing program benefited both IRS and taxpayers and recommended that to broaden its use, IRS redirect its marketing focus. In addition, we recommended that IRS institute additional controls to reduce the program’s vulnerability to fraud. Our study of a federal value-added tax provided the Congress with basic information related to issues and costs that would be involved in its administration. We also provided analysis and data to the Congress that was used in changing the section 936 tax credit to reduce federal revenue losses while maintaining incentives for investment in Puerto Rico. Additionally, we supplied information used by the Congress in its analysis of taxes paid by foreign-controlled corporations as opposed to those paid by U.S.-controlled corporations. For about 30 years, the Taxpayer Compliance Measurement Program (TCMP) has been the IRS’ primary means of gathering information on taxpayer compliance. In 1991, IRS began making plans to redesign TCMP because of concerns about TCMP’s cost, burden to taxpayers, and timeliness. We found that neither cost nor taxpayer burden justified the proposed changes to TCMP and recommended that IRS delay any changes until a satisfactory substitute could be found that met the criteria we had set out in our report. (GAO/GGD-93-52) The volume of long-term tax-exempt bonds doubled between 1968 and 1990, while the amount of foregone federal tax revenues grew proportionately, exceeding $20 billion in 1990. We recommended that IRS improve its oversight of compliance with tax-exempt bond requirements by redirecting its enforcement program to test current market compliance, to make better use of information collected from bond issuers, and to reassess staffing levels and locations. We also recommended that IRS develop and implement a plan for more effective use of resources to promote voluntary compliance in the tax-exempt bond industry. (GAO/GGD-93-104) IRS audits indicate that individuals overstated their real estate tax deductions by an estimated $1.5 billion in 1988, resulting in nearly $700 million in federal income tax losses for 1988 and 1989. We recommended that, to improve voluntary compliance, IRS clearly define user fees, special assessments, and rebates in Form 1040 instructions and that it work with local governments to revise their real estate tax bills to distinguish user fees and special assessments as “nondeductible.” Further, we suggested that IRS auditors routinely check local records and that IRS negotiate agreements with local governments to share data on taxpayers’ real estate payments. (GAO/GGD-93-43) In October 1992, we reported on what states were doing to combat money laundering. We noted that the Internal Revenue Code required persons engaged in a trade or business who received cash payments of over $10,000 to file reports with IRS, but these reports are not available to state law enforcement agencies. We recommended that the Congress amend the IRS disclosure laws to allow states access to data on these reports. (GAO/GGD-93-1) IRS’ electronic filing program benefits both IRS and taxpayers by reducing handling costs, while allowing faster and more accurate processing of returns and refunds. IRS’ marketing of the electronic filing program has focused on attracting more preparers and transmitters, but approximately 90 percent of all individual returns were not filed electronically in 1992. We recommended that, to broaden the use of electronic filing, IRS devise a marketing plan directing appropriate attention to other segments of the population. (GAO/GGD-93-40) Electronic filing also significantly reduces the time it takes to issue a refund to a taxpayer—on average, from 5 weeks for taxpayers who file paper returns to 2 weeks for those who file electronically. Because this speed leaves IRS with as little as 2 days to investigate and stop a refund, however, the program is particularly vulnerable to fraud. We assessed IRS’ controls to prevent electronic filing fraud and recommended additional controls. (GAO/GGD-93-27) Accounts Receivable Collection We studied private sector and state collection techniques to determine whether IRS could make changes to improve its collection of delinquent taxes. We recommended that IRS restructure its collection program to support earlier telephone contact with delinquent taxpayers, develop detailed information on delinquent taxpayers for customized collection procedures, test the use of private collection companies, and identify ways to increase cooperation with state governments. (GAO/GGD-93-67) While IRS’ delinquent taxpayer workload has continued to grow, productivity of collection staff has varied at different field locations. Presently, IRS’ staff allocation system does not use marginal productivity measurements to adjust the staff levels at the various field locations. We recommended that IRS develop a plan to ensure that collection staff would be allocated to maximize the assessment and collection of taxes and that it reconsider its policy against the transfer of collection staff among field offices. (GAO/GGD-93-97) In a review of taxpayer compliance in claiming the dependent exemption, we concluded that the rules for claiming dependent exemptions were too complex and too burdensome for many taxpayers to comply. We suggested that the Congress simplify the rules by substituting a residency test similar to that used in the Earned Income Tax Credit program. We also recommended that IRS resolve operational problems in its computer matching program, thereby enabling IRS to cost-effectively implement a 100-percent computer matching program to identify erroneous dependent claims. (GAO/GGD-93-60) In September 1993, we stated that the earned income tax credit had been the source of more taxpayer mistakes than any other individual income tax provision. We observed that IRS had introduced a complex schedule in an attempt to prevent ineligible taxpayers from receiving the credit but gave the credit even when the schedule lacked pertinent information. We recommended that, to eliminate the need for this complex schedule, IRS modify its tax schedule. Further, as we found that IRS credit-processing procedures are inconsistent in the way that they treat taxpayers who claim the credit but fail to file complete information, we recommended that IRS adjust its procedures to ensure that all taxpayers equitable treatment. Finally, we recommended that IRS expand its efforts to inform low-income workers about the tax credit by sending explanatory notices to all nonfiling workers who had earned income. (GAO/GGD-93-145) In September 1992 testimony, we noted wasteful practices, flawed processes, and inadequate controls related to property seized and maintained by the IRS’ Collection and Criminal Investigation Divisions. We believe that the storage and sale costs could be reduced and revenue increased if sales were consolidated. We recommended that IRS assess the options available for consolidation and contractor management and that its Collection Division provide guidance to its revenue officers on making cost-effective seizures. (GAO/T-GGD-92-65) At present, the Federal Tax Deposit (FTD) system collects payment and tax data separately, thereby creating problems related to matching the accounting information on tax returns to payment data on FTD coupons. The Department of the Treasury is automating the FTD process. We recommended that these automation efforts be monitored to ensure that the new automated system collected together the appropriate accounting data with the taxpayer payment data. (GAO/AFMD-93-40) In March 1993, we reported that taxpayer identity data that IRS routinely collected each year to process tax returns could help the Social Security Administration (SSA) identify the correct accounts to which to credit workers’ social security taxes. We recommended that IRS and SSA work together to conduct a study evaluating the extent to which the agency could better match workers’ earnings to correct social security accounts by using IRS taxpayer data. (GAO/HRD-93-42) IRS continues to lose millions of dollars of interest payments due to delays in depositing individual income tax payments. We believe that IRS needs to aggressively seek ways to deposit tax payments faster and recommended that IRS collect data to help it develop strategies for identifying and rapidly depositing large tax payments. (GAO/GGD-93-64) Collecting Back Taxes: IRS Phone Operations Must Do Better (GAO/IMTEC-91-39) Earned Income Tax Credit: Advance Payment Option Is Not Widely Known or Understood by the Public (GAO/GGD-92-26) Identifying Options for Organizational and Business Changes at IRS (GAO/T-GGD-91-54) International Taxation: Problems Persist in Determining Tax Effects of Intercompany Prices (GAO/GGD-92-89) IRS Information Systems: Weaknesses Increase Risk of Fraud and Impair Reliability of Management Information (GAO/AIMD-93-34) IRS Procurement: Software Documentation Requirement Did Not Restrict Competition (GAO/IMTEC-92-30) Managing IRS: Actions Needed to Assure Quality Service in the Future (GAO/GGD-89-1) Managing IRS: Important Strides Forward Since 1988 but More Needs to Be Done (GAO/GGD-91-74) Targeted Jobs Tax Credit: Employer Actions to Recruit, Hire, and Retain Eligible Workers Vary (GAO/HRD-91-33) Tax Administration: Approaches for Improving Independent Contractor Compliance (GAO/GGD-92-108) Tax Administration: Benefits of a Corporate Document Matching Program Exceed the Costs (GAO/GGD-91-118) Tax Administration: Better Training Needed for IRS’ New Telephone Assistors (GAO/GGD-91-83) Tax Administration: Changes Are Needed to Improve Federal Agency Tax Compliance (GAO/GGD-91-45) Tax Administration: Computer Matching Could Identify Overstated Business Deductions (GAO/GGD-93-133) Tax Administration: Congress Needs More Information on Compliance Initiative Results (GAO/GGD-92-118) Tax Administration: Delayed Tax Deposits Continue to Cause Lost Interest for the Government (GAO/GGD-93-64) Tax Administration: Effectiveness of IRS’ Return Preparer Penalty Program Is Questionable (GAO/GGD-91-12) Tax Administration: Efforts to Prevent, Identify, and Collect Employment Tax Delinquencies (GAO/GGD-91-94) Tax Administration: Erroneous Dependent and Filing Status Claims (GAO/GGD-93-60) Tax Administration: Erroneous Penalties for Failure to File Returns or Pay Taxes Can Be Reduced (GAO/GGD-90-80) Tax Administration: Expanded Reporting on Seller-Financed Mortgages Can Spur Tax Compliance (GAO/GGD-91-38) Tax Administration: Federal Agencies Should Report Service Payments Made to Corporations (GAO/GGD-92-130) Tax Administration: Federal Contractor Tax Delinquencies and Status of the 1992 Tax Return Filing Season (GAO/T-GGD-92-23) Tax Administration: Improved Staffing of IRS’ Collection Function Would Increase Productivity (GAO/GGD-93-97) Tax Administration: Information Returns Can Improve Reporting of Forgiven Debts (GAO/GGD-93-42) Tax Administration: IRS Can Improve Controls Over Electronic Filing Fraud (GAO/GGD-93-27) Tax Administration: IRS Can Improve Its Process for Recognizing Tax-Exempt Organizations (GAO/GGD-90-55) Tax Administration: IRS Can Improve Its Program to Find Taxpayers Who Underreport Their Income (GAO/GGD-91-49) Tax Administration: IRS Experience Using Undercover Operations’ Proceeds to Offset Operational Expenses (GAO/GGD-91-106) Tax Administration: IRS’ Implementation of the 1988 Taxpayer Bill of Rights (GAO/GGD-92-23) Tax Administration: IRS’ Management of Seized Assets (GAO/T-GGD-92-65) Tax Administration: IRS Needs More Reliable Information on Enforcement Revenues (GAO/GGD-90-85) Tax Administration: IRS’ 1992 Filing Season Was Successful But Not Without Problems (GAO/GGD-92-132) Tax Administration: IRS’ Plans to Measure Tax Compliance Can Be Improved (GAO/GGD-93-52) Tax Administration: IRS Preparer Penalty Data Inaccurate and Misleading (GAO/GGD-90-92) Tax Administration: IRS Should Expand Financial Disclosure Requirements (GAO/GGD-92-117) Tax Administration: IRS’ System Used in Prioritizing Taxpayer Delinquencies Can Be Improved (GAO/GGD-92-6) Tax Administration: IRS Undercover Operations Management Oversight Should Be Strengthened (GAO/GGD-92-79) Tax Administration: Need for More Management Attention to IRS’ College Recruitment Program (GAO/GGD-90-32) Tax Administration: Negligence and Substantial Understatement Penalties Poorly Administered (GAO/GGD-91-91) Tax Administration: New Delinquent Tax Collection Methods for IRS (GAO/GGD-93-67) Tax Administration: Opportunities to Further Improve IRS’ Business Review Process (GAO/GGD-92-125) Tax Administration: Opportunities to Increase Revenue Before Expiration of the Statutory Collection Period (GAO/GGD-91-89) Tax Administration: Opportunities to Increase the Use of Electronic Filing (GAO/GGD-93-40) Tax Administration: Overstated Real Estate Tax Deductions Need To Be Reduced (GAO/GGD-93-43) Tax Administration: Standards Adhered to in Issuing Revenue Ruling 90-27 (GAO/GGD-92-15) Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion (GAO/GGD-92-67) Tax Policy: Allocation of Taxes Within the Life Insurance Industry (GAO/GGD-90-19) Tax Policy and Administration: Improvements for More Effective Tax-Exempt Bond Oversight (GAO/GGD-93-104) Tax Policy: Earned Income Tax Credit: Design and Administration Could Be Improved (GAO/GGD-93-145) Tax Policy: Summary of GAO Work Related to Expiring Tax Provisions (GAO/T-GGD-92-11) Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued Interest (GAO/GGD-90-31) The New Earned Income Credit Form Is Complex and May Not Be Needed (GAO/T-GGD-91-68) The size and the persistence of the budget deficit is central to the nation’s economic future. The budget has become a focal point for many of the current policy debates. As a result, the budget and the budget process are expected to meet many demands. They are expected to provide a mechanism to reduce the deficit, to promote greater long-term economic growth, to provide policymakers with information and choices needed to make short-term and long-term spending decisions, and to enable managers to use funds in the most efficient manner consistent with congressional priorities. Our work provides information and analysis directed at each of these challenges. Specifically, our work (1) provides the Congress with deficit reduction analysis and reduction options and strategies, (2) recommends improvements in the budget presentation and choices provided by the budget and budget process, (3) highlights for decisionmakers the choices between consumption and investment spending and provides criteria and analysis to decisionmakers to help in the selection of effective investments, and (4) assesses the impacts of budget rules and incentives on management and examines the potential impacts of proposed budget changes on both managerial efficiency and congressional oversight. Deficit reduction is essential to our nation’s long-term economic health. The fiscal year 1993 deficit is approximately $254.9 billion, or 4 percent of the Gross Domestic Product, net interest is approximately $199 billion, and debt held by the public approximately $3.2 trillion. As we reported to the Congress last year, failure to make difficult choices concerning what responsibilities the federal government will carry out and how those activities will be financed will lead to increasingly large deficits, accompanied by steady erosion of economic growth. Our analysis of the impact of the deficit on economic growth and productivity has provided the public, private policy organizations, and the Congress with information required to develop a perspective on recent economic experiences and on the administration’s economic plan. A provision similar to recommendations that we made to the House and Senate Budget Committees regarding budget control was applied to existing entitlements and mandatory programs by the House and incorporated by the President in an executive order following the passage of the Omnibus Reconciliation Act of 1993. Our report on the implications of state balanced budget requirements for the federal government has contributed to congressional debate on a proposed federal balanced budget amendment and will be used again in the near future as the issue of a federal balanced budget is expected to be reintroduced for debate. Our current work on deficit reduction options and strategies includes organizing a multiyear GAO-wide effort initiated by the Comptroller General to provide critical budget-related information to congressional and administrative decisionmakers. The budget presentation provides a framework of choices and therefore heavily influences budget outcomes. Budget choices could be improved if the budget structure and process highlighted and provided needed information about critical budget choices. In addition, better information about the costs of federal programs and a greater ability to link budgeting and accounting data could enhance the quality of budget decisions. Our review of linkages between budgeting and financial statements at the Department of Veterans Affairs identified problems that result when accounting systems are not structured to provide the types of data needed in the budget process. We developed and presented new financial reporting models that would result in the audit of actual budget execution data and better recognition of future budgetary claims. The Office of Management and Budget (OMB) incorporated several of our proposed recommendations into its guidance for the preparation of financial statements. Also, the financial reporting models served as a starting point for the Federal Accounting Standards Advisory Board in its efforts to develop more-relevant and more-useful financial reports. We informed the Congress of the factors that led to the substantial differences between estimates and actual results for receipts and outlay accounts for fiscal year 1992. This analysis was used by the Senate Committee on Budget in formulating the Senate Budget Resolution for fiscal years 1994-98. Our work on restructuring the way budget data are presented has focused on helping decisionmakers understand the long-term economic impact of their choices. Information provided to both the Congress and the administration has contributed to the current debate on investment and capital budgeting issues and has been incorporated into congressional capital budgeting proposals. Our work on the economic impact of the deficit identified the need to refocus the budget structure to promote a shift in the composition of federal spending from consumption to investment programs. Our work on restructuring the way budget data are presented has assisted the Congress in looking at investment as a share of the budget. In addition, our current work on investment provides criteria and analysis to help decisionmakers select effective investments. For example, we have issued a framework to help the Congress choose effective federal investments. We have also established a network within GAO to work with other divisions in evaluating federal investments. We provided valuable input to OMB regarding its guidance to agencies on evaluating investment programs. Because of our efforts, OMB has requested our continuing advice and counsel as it works with the executive agencies over the next year to plan evaluation designs. The reinventing government agenda—the conceptual driver for the Vice President’s National Performance Review as well as pending performance measures bills—has focused new attention on the impact of budget rules and incentives on agency management and program delivery. Our report to the Congress and OMB on the uses and the limitations of performance measurement and budgeting and the potential implications of state experiences for the federal government highlighted the need for fundamental change, especially in the area of better cost accounting systems to support performance budgeting at the federal level. Our report on performance budgeting documented implementation issues that OMB incorporated into its discussions on the implementation of the Government Performance Results Act of 1993. We plan to focus our current work on the examination of budget formulation and execution procedures, paying particular attention to proposals discussed in the National Performance Review. We will examine the impact on agency management of executive branch rules and incentives for controlling funds, as well as reviewing congressional techniques for control, such as rescissions, earmarking, reprogramming, and transfers. We are required by law to submit an annual compliance report that addresses compliance by OMB and the Congressional Budget Office (CBO) with the Budget Enforcement Act of 1990. When we reviewed the reports and presidential orders for the session of the Congress ended January 3, 1992, we reported that OMB and CBO had substantially complied with the act, but we found several minor instances in which either OMB or CBO, or both, had not implemented certain provisions. We discussed several matters for congressional consideration for making technical corrections to the act to clarify certain areas and allow more precise implementation. The Congress considered changes to the Budget Enforcement Act of 1990 for inclusion in the Omnibus Reconciliation Act of 1993. While no changes were enacted in the Omnibus Reconciliation Act of 1993, the Conference Report on the Budget Reconciliation Act of 1993 indicated that the House intended to pursue changes to the Budget Enforcement Act of 1990 at a later date. (GAO/AFMD-92-43) Budget Issues: Compliance Report Required by the Budget Enforcement Act of 1990 (GAO/AFMD-92-43) Our civil agency audits have illustrated the importance of reliable financial statements and effective systems in strengthening accountability and improving control over the federal government’s financial resources and affairs. The preparation and the audit of accurate and useful financial statements depends upon the quality and the availability of the financial information on which they are based and ultimately the adequacy of the underlying systems and related internal controls. The government’s financial systems and internal controls are woefully inadequate. But, even though agencies have spent billions of dollars to upgrade their financial systems, these efforts have had limited success. Many federal financial systems are weak, outdated, and inefficient and cannot routinely produce relevant, timely, and accurate data on the results and the costs of operations. Since its passage 3 years ago, the Chief Financial Officers (CFO) Act of 1990 has set the foundation for effective implementation and for beginning the process of change. A mechanism for reform is now in place, which represents a major accomplishment of our work and our long-term commitment to restore integrity to the federal government’s financial management operations. The act can achieve substantive change, but this is just the first step; reform will require strong leadership, new thinking, and sustained high-level support and oversight. While much more needs to be done, agencies are beginning to recognize and fix their extensive financial systems deficiencies, come to grips with financial personnel recruitment and retention problems, and understand better the benefits to be gained through using new types of useful and relevant financial reports that are backed up by annual audits. We have helped agency managers and others become familiar with the CFO Act’s principal features and more fully understand the actions needed to successfully implement the act. We have worked to foster adoption of appropriate financial reporting and accounting standards, promote quality financial audits and audit methods, and develop meaningful performance measures and cost systems. As part of our Transition Series, our report entitled Financial Management Issues (GAO/OCG-93-4TR) discusses the (1) widespread financial management weaknesses that exist in government today, (2) role of the CFO Act in providing a road map for reform, (3) steps needed to fully implement this act and make good financial management a reality, and (4) further necessary actions. Our civil audits, over the past several years, have also resulted in other significant improvements in federal financial management. We demonstrated, for example, through discussion and analysis of several agencies’ financial operations, the type of information that will give the Congress and the President greater insight into, and understanding of, agencies’ financial affairs and the type of information that should be addressed in agency reports and attested to by the independent auditor. We have also conducted financial audits resulting in significant improvements in the quality of agency financial information and identified serious problems in agency financial operations. Most recently, we completed the first financial audits of the Internal Revenue Service (IRS) and the Customs Service, which were done under the CFO Act’s pilot program of agency-level audited financial statements (GAO/AIMD-93-2 and GAO/AIMD-93-3). In addition, we audited the Department of Education’s Federal Family Education Loan Program’s financial statements for fiscal year 1992 (GAO/AIMD-93-4). We have also facilitated fundamental change in the government’s Financial Integrity Act program and strengthened implementation of the act. We have developed a program that will enable the Office of Management and Budget (OMB) and the agencies to focus on high-risk areas and to provide leadership to redirect the government’s program for addressing long-standing internal control problems. Also, we have issued a series of reports that summarize our findings and recommendations for 17 federal programs identified as highly susceptible to waste, fraud, abuse, and mismanagement. Our repeated emphasis on the need for long-range financial management planning for the government has resulted in OMB’s issuing, in April 1992, its first 5-year federal financial management status report under the CFO Act. The plan outlines OMB’s approach to implementing the act and provides its vision as to what constitutes good financial management. Our recommendations that delinquent nontax debt owed to agencies be collected through the IRS refund offset led the Congress, in 1993, to make this program mandatory through legislation; the program is expected to save the government billions of dollars. Also, the Congress passed legislation requiring agencies to report closed-out debts to IRS as income to the debtors, which we also recommended. Across government, effective financial management operations and information are hampered by financial systems that are incompatible; have been allowed to deteriorate; are out of date; and cannot meet managers’ cost, performance measurement, and other financial information needs. Agencies face a great challenge in providing strong financial management, effective internal controls, and sound fiscal accountability, but the investment will pay for itself many times over in improved operations and useful information for decisionmaking. We have continually pressed agencies and the administration to improve credit management and debt collection practices. Our report on OMB’s nine-point credit management program recommended that the Congress amend the Debt Collection Act of 1982 to require agencies, where consistent with program legislation, to use provisions of the act that are now optional and other credit management techniques. We continue to consider strengthened legislation in the credit management area to be an extremely important element for improving the government’s loan programs, with billions in savings possible. (GAO/AFMD-90-12) Over the years, we have made many agency-specific recommendations to correct problems of fundamental accounting procedures, including serious internal control and accounting system weaknesses. The following recommendations deserve priority attention. We recommended, in our report on IRS’ accounts receivable, certain actions to develop a strategy for distinguishing between assessments that should be included in the receivables and those that should not, to include only valid receivables in the balances reported in IRS financial statements, and to modify IRS’ methodology for assessing the collectibility of its receivables. (GAO/AFMD-93-42) In our report on the National Aeronautics and Space Administration’s internal controls and financial management systems, we recommended actions necessary to improve the reliability of contractor cost data, improve controls over the accounting for and reporting of contractor-held property, strengthen budgetary funds controls to ensure proper use of resources, and resolve discrepancies in general ledger accounts to improve the accuracy of financial reporting to Treasury. (GAO/AFMD-93-3) Regarding the serious deficiencies we found in the Department of State’s financial systems, which require sustained attention, we recommended actions to give top priority to resolving fundamental financial problems and emphasize short-term actions, monitor long-range standardization and integration efforts, and ensure that future financial systems development and enhancement projects incorporated reporting requirements to meet users’ needs. (GAO/AFMD-93-9) We recommended actions to improve Education’s Guaranteed Student Loan Program internal controls, including the preparation of a comprehensive plan on the role of guaranty agencies and the manner in which they are compensated. The plan should recommend changes in the program that would provide more effective incentives to guaranty agencies and lenders to help prevent defaults, improve controls over conflicting activities by guaranty agencies, and enhance federal oversight. (GAO/AFMD-93-20) In our report on the serious problems that the Bureau of Indian Affairs was experiencing in accounting for and reconciling Indian trust fund moneys totaling more than $2 billion, we recommended that the Department of the Interior seek alternative ways to reconcile the accounts and develop a proposal for reaching a satisfactory resolution of the trust fund account balances with account holders. (GAO/AFMD-92-38) We recommended a number of actions that the Commissioner of Customs could take to improve accounting for and control over resources, including receivables and property, and to collect billions of dollars in duties and fees and additional millions of dollars in amounts owed to the agency. (GAO/AFMD-92-30) Major improvements are needed to restore integrity to the federal government’s financial management operations. Key elements of successful federal financial management reform are high-quality leadership, an effective CFO organizational structure, effective long-range planning, and preparation of meaningful and auditable financial statements. While agencies have made some progress in these areas, making substantive and lasting improvements is possible by taking prompt actions necessary to implement our recommendations and to meet the CFO Act’s requirements. Bureau of Indian Affairs’ Efforts to Reconcile and Audit the Indian Trust Funds (GAO/T-AFMD-91-2) Cost Accounting: Department of Energy’s Management of Contractor Pension and Health Benefit Costs (GAO/AFMD-90-13) Credit Management: Deteriorating Credit Picture Emphasizes Importance of OMB’s Nine-Point Program (GAO/AFMD-90-12) Federal Credit Programs: Agencies Had Serious Problems Meeting Credit Reform Accounting Requirements (GAO/AFMD-93-17) Federal Tax Deposit System: IRS Can Improve the Federal Tax Deposit System (GAO/AFMD-93-40) Financial Audit: Department of Veterans Affairs Financial Statements for Fiscal Years 1989 and 1988 (GAO/AFMD-91-6) Financial Audit: EPA’s Financial Statements for Fiscal Years 1988 and 1987 (GAO/AFMD-90-20) Financial Audit: Forest Service’s Financial Statements for Fiscal Year 1988 (GAO/AFMD-91-18) Financial Audit: Guaranteed Student Loan Program’s Internal Controls and Structure Need Improvement (GAO/AFMD-93-20) Financial Audit: IRS Significantly Overstated Its Accounts Receivable Balance (GAO/AFMD-93-42) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Year 1986 (GAO/AFMD-87-38) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Years 1987 and 1986 (GAO/AFMD-89-23) Financial Audit: Veterans Administration’s Financial Statements for Fiscal Years 1988 and 1987 (GAO/AFMD-89-69) Financial Management: Actions Needed to Ensure Effective Implementation of NASA’s Accounting System (GAO/AFMD-91-74) Financial Management: BIA Has Made Limited Progress in Reconciling Trust Accounts and Developing a Strategic Plan (GAO/AFMD-92-38) Financial Management: Customs Needs to Establish Adequate Accountability and Control Over Its Resources (GAO/AFMD-92-30) Financial Management: Education’s Student Loan Program Controls Over Lenders Need Improvement (GAO/AIMD-93-33) Financial Management: IRS Lacks Accountability Over Its ADP Resources (GAO/AIMD-93-24) Financial Management: NASA’s Financial Reports Are Based on Unreliable Data (GAO/AFMD-93-3) Financial Management: Opportunities for Improving VA’s Internal Accounting Controls and Procedures (GAO/AFMD-89-35) Financial Management: Serious Deficiencies in State’s Financial Systems Require Sustained Attention (GAO/AFMD-93-9) Financial Management: The U.S. Mint’s Accounting and Control Problems Need Management Attention (GAO/AFMD-89-88) Immigration Management: Strong Leadership and Management Reforms Needed to Address Serious Problems (GAO/GGD-91-28) IRS Information Systems: Weaknesses Increase Risk of Fraud and Impair Reliability of Management Information (GAO/AIMD-93-34) Management of HHS: Using the Office of the Secretary to Enhance Departmental Effectiveness (GAO/HRD-90-54) Managing IRS: Actions Needed to Assure Quality Service in the Future (GAO/GGD-89-1) Managing IRS: Important Strides Forward Since 1988 but More Needs to Be Done (GAO/GGD-91-74) Medicare: HCFA Should Improve Internal Controls Over Part B Advance Payments (GAO/HRD-91-81) National Archives: A Review of Selected Management Issues (GAO/AFMD-89-39) Superfund: EPA Cost Estimates Are Not Reliable or Timely (GAO/AFMD-92-40) Government corporations provide trillions of dollars in guarantees and insurance in support of the nation’s major financial industries, including banks, savings and loan institutions, credit unions, and pension plans. Past severe problems in the savings and loan and banking industries and the termination of large underfunded pension plans have focused the attention of policymakers and the public on the taxpayers’ significant exposure to loss through the government’s credit and insurance activities. Although the condition and the performance of both banks and thrifts have recently improved, segments of the industry remain troubled and the insurance funds need to be rebuilt to statutorily required levels. In addition, the Pension Benefit Guaranty Corporation (PBGC) faces a large and growing deficit that threatens the insurance program’s long-term viability. To take prompt action and minimize the taxpayers’ exposure and costs, the Congress and regulators need reliable and informative financial reporting that provides early warning on emerging problems. To provide the necessary information, we have focused our work on ensuring that corporate entities accurately report their financial condition and performance, maintain internal control structures that provide accountability and safeguard assets, and effectively implement the requirements of the Chief Financial Officers (CFO) Act of 1990. We have also begun evaluating whether generally accepted accounting principles and auditing standards provide an adequate basis for assessing financial condition and operating performance. We have worked closely with the Resolution Trust Corporation (RTC), the Federal Deposit Insurance Corporation (FDIC), and PBGC to improve the reliability of their financial data and internal control systems and we have seen considerable progress over the past few years. For 1992, all three corporations received an unqualified opinion on their balance sheets. Because previous financial audits highlighted deficiencies in the corporations’ recognition and measurement of loss contingencies, all three, in 1992, improved their methods used to estimate future losses associated with insurance activities. Our audits have also disclosed internal control weaknesses of varying significance. In general, the corporations have agreed with our findings and acted quickly to address most weaknesses. In fact, many informal recommendations for improved reporting or internal controls are implemented by management before our audit work is complete. We expect internal control problems in some areas to continue in the future, however. Our 1992 financial audit work also has provided the Congress with vital information on the corporations’ status and funding needs. Although the condition of the banking industry has improved, we warned that the Bank Insurance Fund could remain undercapitalized for a number of years and, therefore, remained vulnerable to adverse changes in economic conditions. The Fund’s reserves must be rebuilt to enable it to handle any significant level of bank failures. Like the condition of the banking industry, the condition of the savings and loan industry showed considerable improvement in 1992. But, we have reported that many failed thrifts continue to lose money and add to the taxpayers’ costs because RTC lacks sufficient funds to close them. On October 1, 1993, failed thrifts not resolved by RTC will become the responsibility of the Savings Association Insurance Fund, which is expected to have a balance of less than $1.5 billion at that time. Finally, we have warned that PBGC’s large and growing deficit threatens the insurance program’s long-term viability and have supported legislative action to strengthen the funding standards for defined benefit pension plans. We have also focused on the efforts of government corporations to implement the CFO Act. We discussed with the Office of Management and Budget and each of the 33 corporations subject to the act the requirement for management’s assessment of internal controls and have worked with each corporation to provide guidance for preparing the management report. In 1992, all but one government corporation was being audited, and nearly all have issued the required assessment reports. Our efforts to urge accounting and auditing standard-setters to adopt more realistic measures of financial condition and operating performance focused on asset valuation rules and reporting on internal controls. Two important standards were issued by the Financial Accounting Standards Board during 1993 affecting asset valuation—SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. While these new standards are a positive step toward improving financial reporting, they fall short of fully adopting fair value accounting for these types of assets, which we believe is a more realistic basis for establishing asset values. With regard to reporting on internal controls, in 1992, we provided FDIC with detailed, comprehensive suggestions for development of regulations to implement the internal control provisions of the FDIC Improvement Act of 1991. But, we do not believe that FDIC issued sufficiently detailed regulations for proper implementation of the act. We plan to review the actual procedures employed by financial institutions and their auditors to address the act’s requirements for assessment of internal controls. In our audit of PBGC’s fiscal year 1992 financial statements, we found that PBGC made substantial progress in dealing with significant system and internal control weaknesses and in addressing key recommendations made in our earlier report on PBGC’s fiscal year 1990 financial statements. (GAO/AFMD-92-1) This progress enabled us, for the first time, to opine on PBGC’s statement of financial condition. PBGC, however, continues to face weaknesses in financial systems and internal controls. Our report on the fiscal year 1992 audit made additional recommendations to address weaknesses in systems integration, internal controls, financial reporting, and the assessment of contingent liabilities. PBGC is addressing these weaknesses and, as part of the fiscal year 1993 financial statement audit, we will assess its progress. (GAO/AIMD-93-21) Our 1992 financial statement audit of RTC disclosed several internal control weaknesses that could affect RTC’s ability to safeguard its assets from unauthorized use or disposition or to ensure that its financial reports are complete and accurate. In our report on its internal controls at December 31, 1992, we recommended that RTC take actions to ensure that loss accruals are accurately calculated and that control procedures related to field office reconciliations and journal entry preparation are proper and consistently followed. RTC has agreed to address these weaknesses in 1993, and we will monitor its progress as part of our 1993 financial statement audit. (GAO/AIMD-93-50) In our report on the Savings Association Insurance Fund’s (SAIF) 1991 financial statements, we recommended action to improve FDIC’s internal controls over its time and attendance reporting process. FDIC has worked to address the weaknesses identified in our report and anticipates resolving them through the issuance of a revised time and attendance reporting directive and increased training during 1993. As part of our 1993 SAIF financial statement audit, we will assess FDIC’s success in addressing these weaknesses. (GAO/AFMD-92-72) Our review on bank and thrift examinations performed by FDIC, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision disclosed that the examinations were too limited to fully identify and determine the extent of deficiencies affecting the safety and the soundness of insured depository institutions. We made various recommendations to the regulators in our reports to improve the scope and the quality of the examinations. These recommendations focused on the need to take a more proactive approach to the examination of banks and thrifts, including more emphasis on assessing internal controls, representative sampling of the loan portfolio, and development of a sound methodology for assessment of the adequacy of loan loss reserves. The receptiveness to our recommendations varied among the four regulatory agencies. We will continue to monitor the agencies’ progress to assess the effectiveness of changes in the examination process. (GAO/AFMD-93-11, GAO/AFMD-93-12, GAO/AFMD-93-13, and GAO/AFMD-93-14) In our summary report on the examination review, we asked the Congress to consider the appropriateness of the present regulatory structure. Since that time, several bills have been introduced, and are still pending, which propose changes to the current regulatory structure. (GAO/AFMD-93-15) Asset Management System: Liquidation of Failed Bank Assets Not Adequately Supported by FDIC System (GAO/IMTEC-93-8) Bank and Thrift Regulation: Improvements Needed in Examination Quality and Regulatory Structure (GAO/AFMD-93-15) Bank Examination Quality: FDIC Examinations Do No Fully Assess Bank Safety and Soundness (GAO/AFMD-93-12) Bank Examination Quality: FRB Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-14) Bank Examination Quality: OCC Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-13) Credit Unions: Reforms for Ensuring Future Soundness (GAO/GGD-91-85) Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase Protection Under ERISA (GAO/AFMD-92-14) Financial Audit: Pension Benefit Guaranty Corporation’s 1992 and 1991 Financial Statements (GAO/AIMD-93-21) Financial Audit: Resolution Trust Corporation’s Internal Controls at December 31, 1992 (GAO/AIMD-93-50) Financial Audit: Savings Association Insurance Fund’s 1991 and 1990 Financial Statements (GAO/AFMD-92-72) Financial Audit: System and Control Problems Further Weaken the Pension Benefit Guaranty Corporation (GAO/AFMD-92-1) Pension Plans: Pension Benefit Guaranty Corporation Needs to Improve Premium Collections (GAO/HRD-92-103) Premium Accounting System: Pension Benefit Guaranty Corporation System Must Be an Ongoing Priority (GAO/IMTEC-92-74) Resolution Trust Corporation: Assessing Portfolio Sales Using Participating Cash Flow Mortgages (GAO/GGD-92-33BR) Thrift Examination Quality: OTS Examinations Do Not Fully Assess Thrift Safety and Soundness (GAO/AFMD-93-11) Our work has concentrated on the systems and internal controls the Department of Defense (DOD) used both as a basis for its financial reporting and in accounting for and controlling its extensive inventories, weapon systems, equipment, and other assets. In particular, our audits illustrated the importance of reliable financial information and effective systems in strengthening accountability and improving controls over DOD’s multibillion-dollar investment in equipment and inventories. Many DOD systems are weak, outdated, and inefficient and cannot routinely produce relevant, timely, and accurate information on the results and the costs of DOD’s operations. As demonstrated by DOD’s recent “Bottom-Up” Review and the administration’s National Performance Review, as well as decisions made through the base realignment and closure process, DOD is under increasing pressure to work better and reduce costs. Specifically, DOD’s Bottom-Up Review identified about $91 billion in programmatic reductions, including reductions of over 300,000 military and civilian personnel, 2 Army divisions, 3 active Air Force fighter wings, and 55 Navy surface ships and submarines. At the same time, the Secretary of Defense set an overriding goal of accomplishing such downsizing while maintaining the ability to meet our worldwide defense commitments and sustain our high level of military capability, thus avoiding the “hollow armies” resulting from past drawdown initiatives. As a result, more reliable and relevant financial information on the resources for which it is responsible and on the costs of operations will be increasingly important if DOD is to make well-informed tradeoff decisions on how to structure and base remaining forces and how best to administratively operate and support this new structure. Our financial statement audit work identified weaknesses in the basic controls over the accuracy of financial data and in the financial information managers need to support effective management and oversight, as well as accountability over DOD’s extensive inventories of weapons systems, equipment, and supplies. As such, our financial audits resulted in (1) significant improvements in the quality of agency financial information, (2) the identification of serious problems in DOD’s financial operations, and (3) improvements in financial accounting and reporting that will enable the Department not only to better meet its own management information needs but also the reporting objectives of the Chief Financial Officers Act as well. In fiscal year 1992, we reported on our first comprehensive financial audit of the Army and our second such audit of the Air Force. In fiscal year 1993, we completed our second audit of the Army, and we monitored the Air Force Audit Agency’s audit of the Air Force’s financial operations—its first financial statement audit. As a result of our audits, DOD has begun to recognize the benefits of improved financial reporting backed by annual audits and has begun to fix its extensive financial systems deficiencies. For fiscal year 1994, we plan to work with the Army Audit Agency in conducting an audit of the Army’s financial statements. In addition, we plan to conduct a similar audit of the Navy’s fiscal year 1994 financial reporting. Because the public, the Congress, and executive branch officials are increasingly concerned about the federal government’s fiscal condition, DOD has initiated far-reaching efforts to improve and modernize its financial practices, systems, and controls. These initiatives, many of which are relatively long term, are intended to eliminate redundancies by standardizing policies, procedures, and systems. Two of DOD’s major efforts aim to reform the way business functions are performed through the use of a separate fund (the Defense Business Operations Fund) and system improvements (the Corporate Information Management initiative). Our audits focused on helping to identify areas of DOD’s financial management operations that provide opportunities to achieve greater efficiency and effectiveness. For example, our work has pointed out that DOD must adopt policies that are fully consistent with businesslike practices to effectively manage the $81 billion Defense Business Operations Fund. We demonstrated that existing DOD systems used to manage and control resources must be substantially upgraded and effective new systems must be developed and implemented. Overall, our work to date shows that DOD has made limited progress in implementing its financial management improvement initiatives, consequently reducing the initiatives’ cost-saving potential. We focused on identifying whether DOD’s internal controls ensured that its financial management systems could accurately capture, process, and report on day-to-day transactions involving billions of dollars. Numerous recommendations have resulted in improvements in DOD’s ability to ensure the integrity and the reliability of financial information, to safeguard its assets, and to promote conformity with proper operating procedures. Although DOD has increased its ability to accurately account for and report on its financial operations and the financial status of its resources, much more remains to be done. The following are among the most important recommendations that have not yet been fully implemented. In June 1993, we reported that we could not express an opinion on the reliability of Army’s fiscal year 1992 financial statements, in part because actions had not been completed on previous recommendations. Specifically, our August 1992 report on the Army’s financial management operations and financial reporting contained recommendations for improving overall financial management by (1) enhancing internal controls and accountability over assets and resources, (2) developing reliable financial performance measures, (3) improving integration of logistics and financial systems, and (4) delineating financial management responsibilities between the Army and the Defense Finance and Accounting Service. (GAO/AFMD-92-82) In addition, our January 1993 report on depot maintenance for Army weapons and equipment contained recommendations directed at improving (1) safeguards over assets during the maintenance process and (2) records and reports on job order maintenance costs. Specifically, we found that inadequate protection of Army assets led to increased scrappage rates and maintenance costs and that weak accounting controls contributed to the inclusion of nonmaintenance costs in maintenance cost reporting. (GAO/AFMD-93-8) In our August 1992 report on the Air Force’s budgeting for repairable inventory items, which constitutes about $31 billion of Air Force inventories, we recommended that the Secretary of the Air Force improve the financial management and internal control systems used to develop budget estimates and to make purchase decisions for repairable items. Our recommendations focused on (1) implementing controls to help ensure the reliability of inventory data, (2) internal reporting to improve the Air Force Logistics Command’s oversight of the Air Logistics Center, (3) revising procedures to eliminate unsupported adjustments to inventory records, and (4) reporting the system and internal control weaknesses in the annual Federal Managers’ Financial Integrity Act report until corrected. (GAO/AFMD-92-47) In February 1992, we issued our second comprehensive report on Air Force’s financial management operations. This report built upon the work and the recommendations included in our February 1990 report, which contained 26 recommendations to improve financial controls, accountability, and reporting. In our latest report, we noted that many of our previous recommendations were still appropriate and that DOD and the Air Force were relying largely on long-term DOD initiatives to improve financial systems. We recommended that (1) DOD give high priority in the short term to improving the reliability of data in the Air Force’s primary accounting systems and (2) budgetary systems be used to compile more-reliable costs of weapon systems. (GAO/AFMD-90-23 and GAO/AFMD-92-12) A November 1992 report on Air Force depot maintenance, a Defense Business Operations Fund activity, recommended that DOD implement procedures to more accurately determine costs for billing customers, improve billing practices, and ensure compliance with Defense policies regarding operations of the Fund. (GAO/AFMD-93-5) In June 1993, we issued a report recommending that the Assistant Secretary of the Navy for Financial Management take actions to help prevent unmatched disbursements and to correct the $13.6 billion of unmatched disbursements contained in one major accounting system. We also recommended that this problem be reported as a material weakness in the Navy’s annual Federal Managers’ Financial Integrity Act report to DOD. (GAO/AFMD-93-21) Our March 1993 report on Navy’s depot maintenance industrial fund, a Defense Business Operations Fund organization, showed that the fund had losses totaling over $790 million because it did not recover all costs incurred in providing customers with goods and services. The report’s recommendations focused on ensuring that (1) prices were based on realistic estimates of the costs that would be incurred in providing the goods and services to customers and (2) prices were not adjusted by factors not directly related to the costs incurred, such as the recovery of prior year losses. (GAO/AFMD-93-18) Our report on DOD’s plans to change its method of financing over $70 billion of repairable inventory recommended that the Secretary of Defense develop a uniform policy on the ownership and the control of repairable items in the installation-level supply system. DOD is developing a policy to address our concerns. (GAO/AFMD-91-40) In another report on the financing of repairable inventory items through the stock fund, we recommended that the Secretary of Defense improve DOD’s financial management systems to ensure that DOD accurately (1) track items being returned from customers to the stock fund and (2) bill customers for items purchased from the stock fund. The lack of accurate inventory data could result in DOD’s buying too much inventory or the wrong mix of items. To address our concerns, DOD is enhancing its financial management systems. (GAO/AFMD-92-15) Air Force Depot Maintenance: Improved Pricing and Financial Management Practices Needed (GAO/AFMD-93-5) Defense Inventory: Growth in Air Force and Navy Unrequired Aircraft Parts (GAO/NSIAD-90-100) Defense Inventory: Growth in Ship and Submarine Parts (GAO/NSIAD-90-111) Financial Audit: Aggressive Actions Needed for Air Force to Meet Objectives of the CFO Act (GAO/AFMD-92-12) Financial Audit: Air Force Does Not Effectively Account for Billions of Dollars of Resources (GAO/AFMD-90-23) Financial Audit: Financial Reporting and Internal Controls at the Air Force Systems Command (GAO/AFMD-91-22) Financial Audit: Financial Reporting and Internal Controls at the Air Logistics Centers (GAO/AFMD-91-34) Financial Management: Air Force Systems Command Is Unaware of Status of Negative Unliquidated Obligations (GAO/AFMD-91-42) Financial Management: Army Conventional Ammunition Production Not Effectively Accounted for or Controlled (GAO/AFMD-92-57) Financial Management: Army Lacks Accountability and Control Over Equipment (GAO/AIMD-93-31) Financial Management: Defense’s System for Army Military Payroll Is Unreliable (GAO/AIMD-93-32) Financial Management: DOD Faces Implementation Problems in Stock Funding Repairable Inventory Items (GAO/AFMD-92-15) Financial Management: Immediate Actions Needed to Improve Army Financial Operations and Controls (GAO/AFMD-92-82) Financial Management: Inadequate Accounting and System Project Controls at AID (GAO/AFMD-93-19) Financial Management: Internal Control Weaknesses Impede Air Force’s Budgeting for Repairable Items (GAO/AFMD-92-47) Financial Management: Navy Industrial Fund Has Not Recovered Costs (GAO/AFMD-93-18) Financial Management: Poor Internal Control Has Led to Increased Maintenance Costs and Deterioration of Equipment (GAO/AFMD-93-8) Financial Management: Problems in Accounting for DOD Disbursements (GAO/AFMD-91-9) Financial Management: Uniform Policies Needed on DOD Financing of Repairable Inventory Items (GAO/AFMD-91-40) Financial Management: Weak Financial Accounting Controls Leave Commodity Command Assets Vulnerable to Misuse (GAO/AFMD-92-61) Financial Systems: Weaknesses Impede Initiatives to Reduce Air Force Operations and Support Costs (GAO/NSIAD-93-70) Management Review: Follow-Up on the Management Review of the Defense Logistics Agency (GAO/NSIAD-88-107) How information resources—hardware, software, data, and people—are acquired and managed is critical to nearly every government program’s mission—from exploring space, to collecting taxes, to providing social security benefits. The government spends about $20 billion annually acquiring the thousands of telecommunications and computer systems that support these missions. Responsibility for information management and technology is shared by the central and individual executive agencies. The central agencies—the Office of Management and Budget, the General Services Administration, and the Department of Commerce’s National Institute of Standards and Technology—formulate policies, procedures, and standards and monitor individual agency information resource management activities. Individual agencies are responsible for acquiring, managing, and using their information resources effectively and efficiently. We addressed information management and technology issues both governmentwide and as they affect specific agencies. Governmentwide, our recommendations dealing with the purchase of new computers and information systems have had particular impact. We disclosed that civilian agency modernization projects were being implemented before agencies reassessed, simplified, and streamlined their business practices. On the basis of our recommendations, agencies are starting to focus their modernization efforts on the strategic uses of technology for achieving their mission. The central agencies also are taking a more active role in helping individual agencies to develop business plans based on mission goals, analysis of business practices, and long-range information technology planning. In our agency-specific work, we reviewed issues related to the acquisition and the management of computer and telecommunications resources, including development of information systems. Our reviews covered such areas as asset management, child support enforcement, pension benefits, welfare programs, internal revenue, health care management, pesticide registration, weather forecasting, and crop insurance. We also evaluated agency management of information for increased program effectiveness. Presently, all key open governmentwide recommendations are being addressed. The following key open agency-specific recommendation relates to the Department of Defense’s corporate information management strategy. Our agency-specific reports fall into substantive areas that concern other issue areas. For example, a report on the Federal Deposit Insurance Corporation’s (FDIC) automatic data processing programs supplements and complements the work of the financial institutions and markets issue area. Because our reports address specific programs, they are included in the appropriate issue area sections of this report. For example, our report on FDIC’s Asset Management System is found in the section on “Financial Institutions and Markets.” The Department of Defense has made little progress in implementing the recommendations in our September 1992 report. Defense is at a turning point regarding CIM. The new leadership of the incoming administration is reassessing the overall strategy of the CIM initiative. It is unclear what this reassessment will encompass and when it will be completed. As one of the largest information management initiatives ever undertaken, CIM has great promise—not only for Defense but for other federal agencies and the nation as well. By improving business operations with less resources, Defense can improve its war-fighting capabilities while shifting scarce resources to other national needs. Implementing CIM, however, requires a major cultural change in managing information resources that Defense is finding difficult to implement. Therefore, we believe it is critical for the Secretary of Defense to take an active role in implementing CIM. We are leaving the recommendations in our report open until we can determine if Defense’s reassessment of CIM adequately addresses our concerns. (GAO/IMTEC-92-77) ADP Procurement: Prompt Navy Action Can Reduce Risks to SNAP III Implementation (GAO/IMTEC-92-69) Air Force ADP: Lax Contract Oversight Led to Waste and Reduced Competition (GAO/IMTEC-93-3) Air Traffic Control: FAA Needs to Justify Further Investment in Its Oceanic Display System (GAO/IMTEC-92-80) Asset Management System: Liquidation of Failed Bank Assets Not Adequately Supported by FDIC System (GAO/IMTEC-93-8) Collecting Back Taxes: IRS Phone Operations Must Do Better (GAO/IMTEC-91-39) Composite Health Care System: Outpatient Capability Is Nearly Ready for Worldwide Deployment (GAO/IMTEC-93-11) Crop Insurance Program: Nationwide Computer Acquisition Is Inappropriate at This Time (GAO/IMTEC-93-20) Defense ADP: Corporate Information Management Must Overcome Major Problems (GAO/IMTEC-92-77) Defense Communications: Defense’s Program to Improve Telecommunications Management Is at Risk (GAO/IMTEC-93-15) Department of Energy: Better Information Resources Management Needed to Accomplish Missions (GAO/IMTEC-92-53) Embedded Computer Systems: Software Development Problems Delay the Army’s Fire Direction Data Manager (GAO/IMTEC-92-32) Energy Information: Department of Energy Security Program Needs Effective Information Systems (GAO/IMTEC-92-10) Environmental Enforcement: EPA Needs a Better Strategy to Manage Its Cross-Media Information (GAO/IMTEC-92-14) Environmental Enforcement: Penalties May Not Recover Economic Benefits Gained by Violators (GAO/RCED-91-166) Environmental Protection: EPA’s Plans to Improve Longstanding Information Resources Management Problems (GAO/AIMD-93-8) FAA Information Resources: Agency Needs to Correct Widespread Deficiencies (GAO/IMTEC-91-43) FTS 2000 Overhead: GSA Should Reassess Contract Requirements and Improve Efficiency (GAO/IMTEC-92-59) GSA’s Computer Security Guidance (GAO/AIMD-93-7R) Health Information Systems: National Practitioner Data Bank Continues to Experience Problems (GAO/IMTEC-93-1) High Performance Computing: Advanced Research Projects Agency Should Do More to Foster Program Goals (GAO/IMTEC-93-24) Information Management: Immigration and Naturalization Service Lacks Ready Access to Essential Data (GAO/IMTEC-90-75) Information Resources Management: Initial Steps Taken But More Improvements Needed in AID’s IRM Program (GAO/IMTEC-92-64) IRS Procurement: Software Documentation Requirement Did Not Restrict Competition (GAO/IMTEC-92-30) Justice Automation: Tighter Computer Security Needed (GAO/IMTEC-90-69) Medical ADP Systems: Automated Medical Records Hold Promise to Improve Patient Care (GAO/IMTEC-91-5) Patent and Trademark Office: Key Processes for Managing Automated Patent System Development Are Weak (GAO/AIMD-93-15) Pesticides: Information Systems Improvements Essential for EPA’s Reregistration Efforts (GAO/IMTEC-93-5) Premium Accounting System: Pension Benefit Guaranty Corporation System Must Be an Ongoing Priority (GAO/IMTEC-92-74) Securities and Exchange Commission: Effective Development of the EDGAR System Requires Top Management Attention (GAO/IMTEC-92-85) Software Tools: Defense Is Not Ready to Implement I-CASE Departmentwide (GAO/IMTEC-93-27) SSA Computers: Long-Range Vision Needed to Guide Future Systems Modernization Efforts (GAO/IMTEC-91-44) Treasury Automation: Automated Auction System May Not Achieve Benefits or Operate Properly (GAO/IMTEC-93-28) Veterans Affairs IRM: Stronger Role Needed for Chief Information Resources Officer (GAO/IMTEC-91-51BR) Veterans Benefits: Acquisition of Information Resources for Modernization Is Premature (GAO/IMTEC-93-6) Weather Forecasting: Important Issues on Automated Weather Processing System Need Resolution (GAO/IMTEC-93-12BR) Welfare Programs: Ineffective Federal Oversight Permits Costly Automated System Problems (GAO/IMTEC-92-29) Auditing is an important control to help ensure that federal programs and operations are properly carried out and potential problems are identified and resolved promptly and effectively. Auditing also helps to ensure a strong system of governance and accountability in American corporations and institutions and helps to protect federal deposit insurance funds, stockholders and creditors, and taxpayers from exposure to unanticipated risks and losses. With the growing complexity of the federal government and the problems it faces, including severe fiscal strains, an independent and reliable structure must be in place to ensure adequate audit coverage of federal programs and operations, as well as public sector activities of interest to the government. Our work has focused on improving the quality and the effectiveness of audits of federal expenditures, ensuring the quality of audits performed by nonfederal auditors, strengthening corporate governance and accountability, and improving the financial management of legislative branch operations through regular financial statement audits. In our oversight of the Inspectors General (IG) and other audit organizations, our reviews resulted in improved audit coverage, resource usage, and quality of work, as well as the removal of impairments to IG independence and authority. In addition, our audit resolution work prompted the Office of Management and Budget (OMB) to begin revising its audit followup guidance to ensure that agencies take action on IG audit recommendations. In helping to strengthen corporate governance and accountability, our work on bank audit committees contributed to the passage of legislation requiring independent audit committees for all federally insured depository institutions. In recent years, many changes have taken place in the public accounting profession, and our reports on the quality of audits by certified public accountants contributed to the impetus for the changes. As a result of our work on the audits of private employee benefit plans, legislation was introduced in January 1993 that will enhance the value of plan audits. Additional legislation is being drafted by the Department of Labor to encourage better plan management and to better protect the interests of plan participants and the government. Regarding our legislative branch work, our financial statement audits of several legislative entities (such as the House and Senate Sergeants at Arms) and other legislative programs and operations (such as the Congressional Award Program and the Library of Congress) resulted in a number of improvements in their internal controls and accounting systems. Over the years, federal managers have not paid adequate attention to implementing IG recommendations, which has rendered audit resources less effective and has resulted in losses in federal programs and operations. The audit resolution problems are attributable in part to outdated guidance in OMB Circular A-50, “Audit Followup,” on closing audit recommendations. We have recommended that OMB revise the circular to require agencies to close audit recommendations and provide the necessary documentation to verify the closure when (1) agreed-upon corrective actions have been implemented, (2) alternative actions have been taken that essentially meet the auditors’ intent, or (3) circumstances have changed and the recommendations are no longer valid. (GAO/AFMD-92-16) In our continuing review of the quality of audits by nonfederal auditors, we identified weaknesses in the audits of private employee benefit plans so serious that their reliability and usefulness were questionable. We have recommended that the Congress amend the Employee Retirement Income Security Act (ERISA) to (1) require reporting on the adequacy of internal controls by plan administrators and auditors, (2) provide for direct reporting to the Department of Labor of fraud and serious ERISA violations, and (3) require peer review of plan auditors. (GAO/AFMD-92-14) During the past several years, well-publicized cases of financial irregularities in many companies and financial institutions (such as those in the savings and loan industry) have raised serious questions about corporate accountability, the effectiveness of corporate governance and regulation, and the adequacy of audit requirements. We have supported congressional efforts to amend banking laws and securities laws to increase both management’s and the auditor’s responsibilities for detecting and reporting irregularities. We have recommended that the Securities and Exchange Commission (1) ensure that managers of public companies publicly report on their responsibilities for financial statements and internal controls, (2) require the auditor to review and publicly report on the management report, and (3) adopt a requirement for public companies to establish audit committees. (GAO/AFMD-89-38) In the first-ever attempt to audit the financial operations of the Library of Congress, we found that the Library’s financial and accounting records were in such poor condition that we could not audit significant account balances. Because of weaknesses in the Library’s financial management operations, its ability to account for and control its collection of an estimated 89 million books and other materials was limited. We recommended that, to help the Library bring about lasting improvements in its internal controls, the Librarian of Congress (1) establish accounting and internal control policies and procedures to ensure compliance with applicable accounting standards and (2) develop an overall financial management improvement plan. (GAO/AFMD-91-13) Air Force Audit Agency: Opportunities to Improve Internal Auditing (GAO/AFMD-90-16) Audit Resolution: Strengthened Guidance Needed to Ensure Effective Action (GAO/AFMD-92-16) CPA Audit Quality: Status of Actions Taken to Improve Auditing and Financial Reporting of Public Companies (GAO/AFMD-89-38) Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase Protection Under ERISA (GAO/AFMD-92-14) Financial Audit: First Audit of the Library of Congress Discloses Significant Problems (GAO/AFMD-91-13) Single Audit Act: Single Audit Quality Has Improved but Some Implementation Problems Remain (GAO/AFMD-89-72) Congressional committees require evaluative information on federal government programs and issues, and they look to the congressional agencies, including GAO, to provide it. Sound program evaluations are also valuable tools for better management in government. To help improve the quality of evaluative information available to the Congress and to federal agencies, we evaluate various executive agencies’ programs, usually at the request of congressional committees. These studies generally fall into one of four areas: (1) determining the intended and unintended effects of an existing program, (2) identifying the potential effects of a proposed program, (3) assessing the quality of information available in a program area for use in congressional decisionmaking, or (4) reviewing executive branch evaluation functions and studies. In many evaluation reports, we make recommendations to agency officials to (1) correct problems identified in existing programs, (2) increase their awareness of potential effects of proposed programs, (3) improve the quality of information they are collecting and analyzing, and (4) develop more fully their own capability to perform high-quality program evaluation. Thus, while these studies are often used initially by the Congress in its deliberations on specific programs, they are also intended to bring about agency improvements. In some cases, our program evaluations have provided demonstrations of novel or substantially improved designs and methodologies for measuring the extent of program effectiveness or answering evaluation questions of general interest. Thus, the results of our work have frequently helped others in the evaluation field perform their work. Because our program evaluation and methodology studies concern other issue areas, the studies are also discussed in the appropriate issue area sections of this publication. For example, our report on student achievement standards is also discussed in the section entitled “Education and Employment.” The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 emphasized the linkage between traffic congestion and urban air pollution and the need to address both problems jointly and through local planning efforts. Our 1992 report identified several obstacles to achieving ISTEA’s goals in these areas and recommended that the Department of Transportation report to the Congress midway through the reauthorization cycle (FY 1995) on its activities to overcome these obstacles. We noted in particular the need to perform and widely disseminate evaluations of the effectiveness of transportation demand management measures in reducing both congestion and pollution. (GAO/PEMD-93-2) On the basis of our series of eight classified reports on the U.S. strategic nuclear triad, we made five specific recommendations to the Department of Defense (DOD) in our June 10, 1993, unclassified testimony to the Senate Governmental Affairs Committee. To date, DOD has not acted favorably or conclusively on four of those recommendations, as follows: (1) that procurement of the B-2 bomber be terminated with the completion of 15 aircraft, rather than 20 as requested by the Air Force; (2) that additional operational testing of the B-1B bomber be done to verify essential improvements in reliability and electronic countermeasures and to remove remaining uncertainties concerning range performance; (3) that the cost-effectiveness of the Air Force’s proposed life-service extension of the Minuteman III intercontinental ballistic missile be the subject of additional, rigorous review; and (4) that the Navy should continue flight testing for the D-5 submarine-launched ballistic missile at an annual rate sufficient to maintain an understanding of actual missile performance at a high level of confidence. (GAO/T-PEMD-93-5) Our recent review of the three major sources of information on use of illegal drugs showed that the nation lacked good evidence on which to gauge progress in drug control. Surveys of households and high school students do not cover the populations at highest risk and, for those who are surveyed, self-reports of drug use are questionable. We recommended that the Secretary of Health and Human Services make new efforts to validate the commonly used self-report surveys, that the Congress change current laws to require less frequent collection of data on the general population, and that the Secretary of Health and Human Services expand special studies of high-risk groups to fill the gaps in current surveys. (GAO/PEMD-93-18) After reviewing standards set to interpret students’ performance on the National Assessment of Educational Progress (NAEP), we found many technical flaws that made the results of doubtful validity. We recommended that the new standards be withdrawn by the NAEP governing board, that they not be used in reporting NAEP results, and that the governing board also take a number of specific steps to ensure that it does not adopt technically unsound policies or approve technically flawed results. (GAO/PEMD-93-12) Our 8-year followup evaluation, using unique computer-matched wage and service data, showed there were only modest long-term outcomes of the state-federal program that provided services to help persons with disabilities become employed and more independent and be integrated into the community. We also found unexplained disparities in the extent of services purchased for clients of different races. We recommended that the Secretary of Education find out why these disparities existed; strengthen evaluation in a number of ways; and take steps to establish the National Commission on Rehabilitation Services, authorized in 1992 to review the program in depth, before the next reauthorization. (GAO/PEMD-93-19) Adequacy of the Administration on Aging’s Provision of Technical Assistance for Targeting Services Under the Older Americans Act (GAO/T-PEMD-91-3) Adolescent Drug Use Prevention: Common Features of Promising Community Programs (GAO/PEMD-92-2) Drug Abuse Research: Federal Funding and Future Needs (GAO/PEMD-92-5) Drug Use Measurement: Strengths, Limitations, and Recommendations for Improvement (GAO/PEMD-93-18) Educational Achievement Standards: NAGB’s Approach Yields Misleading Interpretations (GAO/PEMD-93-12) Hazardous Waste Exports: Data Quality and Collection Problems Weaken EPA Enforcement Activities (GAO/PEMD-93-24) Illegal Aliens: Despite Data Limitations, Current Methods Provide Better Population Estimates (GAO/PEMD-93-25) Medical Technology: For Some Cardiac Pacemaker Leads, the Public Health Risks Are Still High (GAO/PEMD-92-20) Medical Technology: Quality Assurance Needs Stronger Management Emphasis and Higher Priority (GAO/PEMD-92-10) Medical Technology: Quality Assurance Systems and Global Markets (GAO/PEMD-93-15) Paperwork Reduction: Agency Responses to Recent Court Decisions (GAO/PEMD-93-5) Pesticides: A Comparative Study of Industrialized Nations’ Regulatory Systems (GAO/PEMD-93-17) Public Health Service: Evaluation Set-Aside Has Not Realized Its Potential to Inform the Congress (GAO/PEMD-93-13) Student Testing: Current Extent and Expenditures, With Cost Estimates for a National Examination (GAO/PEMD-93-8) The U.S. Nuclear Triad: GAO’s Evaluation of the Strategic Modernization Program (GAO/T-PEMD-93-5) Traffic Congestion: Activities to Reduce Travel Demand and Air Pollution Are Not Widely Implemented (GAO/PEMD-93-2) Trauma Care Reimbursement: Poor Understanding of Losses and Coverage for Undocumented Aliens (GAO/PEMD-93-1) Vocational Rehabilitation: Evidence for Federal Program’s Effectiveness Is Mixed (GAO/PEMD-93-19) This electronic edition contains the details for GAO’s open recommendations. 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"The Summer Food Service Program is a federal entitlement program that provides funds for program sponsors to serve free, nutritious meals to low-income children when school is not in session. It is administered by USDA’s Food and Nutrition Service, which provides money to state agencies to operate the program and to reimburse local eligible sponsors for meals served to children at designated locations. Eligible sponsoring organizations include (1) public or private nonprofit schools; (2) units of local, municipal, county, or state governments, such as county or city recreation programs; and (3) private nonprofit groups, such as Boys and Girls Clubs or churches. In fiscal year 1997, sponsors served over 126 million meals at a total federal cost of about $258 million. Local program sponsors serve free meals to all children 18 or younger at approved sites located in low-income areas. Low-income areas are those in which at least 50 percent of the children are from households with income at or below the eligibility level for free and reduced-price school meals—185 percent of the federal poverty guidelines ($29,693 for a family of four in the summer of 1997). Sponsors may also operate sites in areas not designated as low income if 50 percent or more of the children enrolled in such sites are eligible for free or reduced-price school meals. While summer camps may participate regardless of their location, only meals served to enrolled campers who have been individually determined to be eligible for free or reduced-price school meals are eligible for federal subsidies. The meals and snacks sponsors provide must meet the program’s nutritional requirements. Sponsors can receive federal subsidies for only two meals per child per day—breakfast and lunch or lunch and a snack. However, camps and programs primarily serving migrant children can receive subsidies for up to three meals each day for each child. This three-meal allowance is a change in the program made by the Welfare Reform Act. Previously, these sponsors could receive payments for up to four meals per day. Sponsors receive subsidy payments in two different categories for their costs of preparing and serving free meals. One category covers sponsors’ administrative costs incurred in the management of summer food programs, such as office expenses, support staff salaries, insurance, and some financial management costs. The second category covers sponsors’ operating costs incurred in the preparation and distribution of the food, the provision of transportation in rural areas, and program activities and salary for the staff supervising the children. Sponsors must maintain records to document all costs and the number of meals they claim for reimbursement for both categories. Sponsors are reimbursed on a per-meal basis at the established rate or for their actual costs, whichever is less. These reimbursement rates in each category are set by law and adjusted each year to reflect changes in the Consumer Price Index. The Welfare Reform Act reduced the operating subsidies for meals and snacks served under the summer food program, effective for the 1997 summer. It did not reduce subsidies for administrative costs. Table 1 highlights the changes in the reimbursement rate for meals since 1996. While the 1998 rates reflect an increase to account for inflation, they are still lower than the rates established for 1996. The 1996 act also eliminated grants to the states for initiating or expanding the school breakfast and summer food programs. These grants, known as start-up and expansion grants, had been mandated by the Child Nutrition Act for the school breakfast program since 1989 and the summer food program since 1994. Previously, USDA had been required to provide grant funding totaling $5 million a year through fiscal year 1997, $6 million in 1998, and $7 million a year thereafter for grants in both programs. These grants covered sponsors’ one-time costs associated with starting or expanding the programs. The reduced reimbursement rates had little effect on the number of sponsors or children participating in 1997. Less than 1 percent of the sponsors were identified by state officials as having left the program because of the reduced rates. On the basis of the information these officials provided, we determined that a relatively small number of children lost access. However, the lower rates did cause some sponsors to make program changes, such as modifying the content of the meal or closing meal sites. Both USDA and many state officials expect the lowered reimbursement rates to somewhat reduce the number of sponsors and children participating in the program over the next 3 years. According to our analysis of data from the 50 states and the District of Columbia, 346 of the 3,387 sponsors that participated in the program in 1996 did not do so in 1997. For these 346 sponsors, state officials were able to identify the reasons that 244 sponsors left the program. According to these officials, 22 left because of the reduced federal subsidies. These 22 sponsors represent less than 1 percent of the sponsors that participated in the program in 1996. Another 222 sponsors left for a variety of other reasons, such as the loss of personnel or construction work at the location where the program operated. The states did not know the reasons for leaving for the remaining 102 sponsors. The 22 sponsors specifically identified as having left the program as a result of the lower reimbursement rates operated meal services at 90 locations. According to the information provided by state officials, 37 of the locations operated by these sponsors were taken over by other sponsors in 1997. These 22 sponsors had an average daily attendance of about 5,000 children in July 1996. Using the information provided by state officials, we estimate that about 49 percent of the children served by these 22 sponsors were served by other sponsors in 1997, about 30 percent were not served by other sponsors, and the effect on the other 21 percent is unknown. Despite the reduced rates, more sponsors may have participated in the program in 1997 than in 1996. On the basis of preliminary USDA data and information we obtained from state officials, we determined that approximately 524 new sponsors may have joined the program in 1997. This addition would represent a net increase of approximately 178 sponsors, or a 5-percent increase over the previous year. By comparison, between 1994 and 1996, there was virtually no change in the total number of sponsors. However, from 1990 to 1994, the number of sponsors increased each year by between 8 and 10 percent. Officials from 38 states and the District of Columbia reported that the decrease in the reimbursement rates did not affect the number of children participating in their state in 1997. In fact, some state officials reported that participation had increased in 1997 despite the reduced federal reimbursement rates. Four states—Minnesota, New York, Vermont, and Washington—reported receiving state funds to offset the effect of the reduced rates. Other states said that their successful outreach efforts to bring in new sponsors offset the effect of the rate reduction on participation. Officials in 11 states reported that children’s participation in their state decreased somewhat as a result of the change in the reimbursement rates. Officials from some of these states explained that participation decreased because they could not replace the sponsors that left. In addition, some state officials said that sponsors that stayed in the program reduced the number of locations where they served meals. As a result, some children who received free meals in 1996 no longer had access to these benefits in 1997. One state official mentioned that cost-cutting measures, such as serving more cold meals and decreasing recreational activities, made the program less attractive to some children. Finally, another state official said that participation was lower because the reduction in the reimbursement rates discouraged a few potential sponsors from joining the program. In the two remaining states, officials were not certain whether the reduced rates had any effect on participation. States officials were divided in their assessment of whether the rate reductions affected the program in ways other than sponsor changes or child participation levels. Officials in 23 states and the District of Columbia told us that there were no other changes to their program as a result of the reimbursement rate decrease, including the quality of the meals served. However, officials in 24 states reported effects other than changes in sponsors and participation that resulted from the loss of federal funds. The following were the most frequently mentioned effects: Meal changes were made. For example, the Georgia director said that sponsors served less fresh fruit and did not offer additional foods such as desserts and chips as often as in the past. The Maine director reported that sponsors in his state had to select their food more cautiously, favoring less costly items. Wisconsin officials said sponsors provided more pre-packaged juice packs in place of fruits and vegetables to decrease labor and food costs. In Hawaii, where the Department of Education actually prepares the food for sponsors to distribute, an official said while the department did not change the entree or fruit/vegetable servings, a smaller bread and dessert portion was served to save money. The number of meal sites was reduced. According to Pennsylvania officials, sponsors had to close or consolidate sites that were too expensive to operate. Small sites that served only 15 to 20 children could not afford to provide meals at the reduced rates. California officials also reported that some sponsors closed sites they could no longer afford to operate. For example, one school sponsor closed three of its six sites because it could not afford the labor costs. Some sponsors had financial difficulty. The Ohio director said more sponsors incurred costs that exceeded the federal reimbursement in 1997 and that it was hard for sponsors to “break even.” Both Pennsylvania and Tennessee officials reported that rural sites are having the most difficulty managing their programs with the reduced rates. Sponsors facing such financial difficulty that do not lower the costs associated with meal preparation would need to either seek additional sources of funds for the shortfall or cut expenditures for other aspects of their program, such as recreation. In the remaining four states, officials were not certain whether the reduced rates had any other effects. According to USDA officials, the full effect of the reduced subsidies was not experienced in the summer of 1997. The officials said that they believed some sponsors chose to continue participating in the program in 1997 to test their ability to manage the program financially with the reduced rates. According to USDA officials, sponsors’ experiences in 1997 will determine whether they remain in the program. They suggested that the number of sponsors leaving the program in 1998 would be greater than in 1997. In responding to our question of whether they would see additional changes in the number of sponsors over the next 3 years because of the rate decrease, the states reported the following: 24 states and the District of Columbia said that the number of sponsors 16 states reported that the lower meal rates would not affect the number 10 states reported that they were uncertain of the effect. State officials predicted similar effects on the number of children participating in the program over the next 3 years. Officials in 22 states reported that participation will decrease somewhat. Most of these officials explained that if they lost sponsors because of the rate decrease, the number of children the state served would decrease. Officials in 16 states and the District of Columbia reported that the decrease in reimbursement rates would not affect the number of participants in their program. Officials in 14 states said that they were uncertain of the effect. State officials explained that a number of factors may mitigate the effects of the rate decrease on the number of sponsors and children over the next 3 years. In particular, officials from several states said that they are expanding outreach efforts to enroll more sponsors and/or encourage current sponsors to expand their efforts and may depend on funds from their states to offset the loss of the federal funds. Some state officials also said that the number of children seeking participation in the program may increase as a result of (1) welfare-to-work initiatives that could cause parents to rely more on the care provided through the sponsors and (2) a reduction in benefits such as food stamps that would make the summer food program more important. In addition, USDA officials said that they are encouraging states to increase their outreach efforts and will take steps to reduce administrative burden on sponsors in order to mitigate the effect of the reduced rates. As part of the work we have ongoing, we will be examining the level of sponsor participation in the summer of 1998. Two other changes to the Summer Food Service Program mandated by the Welfare Reform Act have had some limited effects on the program. First, the decrease in the number of meals—from four to three—for which summer camps and migrant sponsors could be reimbursed resulted in the loss of a reimbursement for a snack, not a meal. According to many state officials, camps and sponsors serving migrant children that had previously submitted four meals for reimbursement did not submit the snack for reimbursement in 1997 because it has the lowest reimbursement rate. Our analysis of preliminary USDA data supports this conclusion. In July 1997, the number of camp snacks subsidized by the summer food program was 59 percent lower than in July 1996. Other state officials told us that the elimination of the fourth meal did not have much effect on some camps in their state because these camps did not serve four meals. Second, the loss of start-up and expansion grants may not have had a significant effect because they were not widely used. During the 2 years that the grants were available, sponsors in only 22 states received grants. In each fiscal year, 1995 and 1996, USDA made $1.5 million of these grants available, but only 44 percent of these funds were awarded in the 2-year period. Many state officials told us that these grants were not very useful to them in expanding the program. Officials in states that received the grants and officials in states that did not complained that the grant process involved extensive paperwork, which imposed too big a burden on sponsors for the small amount of funding provided. In addition, other state officials said that the grant criteria and instructions were confusing and the time allowed for them to inform sponsors about the availability of the grants and completing the paperwork was too short. This concludes my prepared statement. Mr. Chairman, I would be pleased to respond to any questions that you or other Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.","Pursuant to a congressional request, GAO reported on the changes made to the Department of Agriculture's (USDA) Summer Food Service Program, focusing on the: (1) effects these changes had on the number of sponsors and children participating in the program in 1997; and (2) potential effect of the reduced subsidies for the future. GAO noted that: (1) the reduction in federal subsidies for sponsors did not have a significant effect on the number of program sponsors or children participating in 1997; (2) state officials specifically identified only a handful of 1996 sponsors that stopped participating in the program in 1997 because of the reduced subsidies, and the number of children participating in the program was generally not affected; (3) however, almost half of the states reported that the program was affected in other ways, such as sponsors' reducing the number of food items in the meals provided or reducing the number of locations where meals were served; (4) while the number of sponsors and children participating changed only minimally in 1997, both the USDA and the majority of the states expect to see a decrease in the number of sponsors and in the number of children participating over the future because of the reduced subsidies; (5) USDA and several state officials said that some sponsors continued their participation in 1997 to test whether they could finally manage the program with the reduced rate; (6) USDA officials expect that sponsors that could not manage the program with the reduced rates will leave it in future years; and (7) on the other hand, USDA and some state officials said that other factors such as increased outreach efforts and state funding could mitigate the effects of the rate decrease on the number of sponsors and children participating in the future."
"T he Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) expanded insurance coverage in the United States through its ""shared responsibility"" provisions: Employers either provide health coverage or face potential employer tax penalties; likewise, individuals purchase health coverage or face potential individual tax penalties. The ACA does not require employers to provide health coverage, but it does impose employer penalties in the form of a monthly tax on employers that do not provide adequate and affordable health coverage to certain employees. This is known as the employer ""shared responsibility"" provision. Since 2015, employers with at least 50 full-time equivalent (FTE) employees are subject to the employer shared responsibility provisions under Section 4908H of the Internal Revenue Code (IRC) as amended by the ACA. However, in 2015, employers with between 50 and 100 FTE employees were eligible for transition relief if certain criteria were met. (For details, see "" Implementation and Transition Relief "" below.) This report describes the potential employer penalties as well as regulations to implement the ACA employer provisions. The regulations address insurance coverage requirements, methodologies for determining whether a worker is considered full time, provisions relating to seasonal workers and corporate franchises, and other reporting requirements. For an economic analysis of the employer penalty and policy options to modify the penalty, see CRS Report R43181, The Affordable Care Act and Small Business: Economic Issues , by [author name scrubbed] and [author name scrubbed]. The ACA employer shared responsibility provisions apply to all common law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations that are exempt from federal income taxes. The potential employer penalty does not explicitly require that employers offer their employees acceptable health coverage. However, it does impose penalties on certain firms with at least 50 FTE employees if one or more of their full-time employees obtains a premium tax credit through the newly established health insurance exchanges. An individual may be eligible for a premium tax credit if his or her income is between certain thresholds and the individual's employer does not offer health coverage or offers insurance that is ""not affordable"" or does not provide ""minimum value,"" as defined by the ACA. As shown in Figure 1 , determining the potential exposure to the employer penalty is a multi-stage process. First, the firm must be a large employer with at least 50 FTEs to be potentially subject to the penalty. Second, only workers who are considered to be full-time (generally, averaging 30 hours or more per week) may trigger the penalty. Third, the actual calculation of the penalty will depend upon whether the employer currently provides health coverage to its full-time employees, if the coverage is considered adequate and affordable as defined by the ACA, and the number of full-time employees. Only large employers may be subject to penalties regarding employer-sponsored health insurance. The ACA defines a large employer as one who employed an average of at least 50 FTEs on business days during the preceding calendar year. As depicted in Figure 1 , to determine whether an employer is a large employer, the hours worked by both full-time and part-time employees must be calculated. Full-time is defined as having worked on average at least 30 hours per week. Hours worked by part-time employees (i.e., those working less than 30 hours per week) are converted into FTEs and are included in the calculation. In general, hours worked by seasonal employees are also included in this calculation. Overall hours worked by part-time employees during a month are added up, and the total is divided by 120 and added to the number of full-time employees to get the number of FTE workers. This calculation determines only whether an employer is considered large for purposes of potentially being subject to a penalty. The actual penalty is applicable solely to health coverage status of full-time workers and is discussed in the "" How to Determine an Employee's Full-Time Status "" section of this report. The process to determine the underlying employer may be a complicated determination. Owners or part-owners in multiple businesses must follow Internal Revenue Service (IRS) aggregation rules. Firms that use independent contractors must follow IRS rules for determining whether the contractor is an employee. Firms that contract with a temporary staffing agency must determine which entity is the employer (i.e., the firm or the staffing agency) for ACA purposes. Finally, businesses that hire seasonal workers have special rules on how to count hours worked by seasonal employees. The ACA large-employer calculation requires that an employer of multiple entities (such as a franchise owner with several restaurants) must follow the IRS aggregation rules governing controlled groups . Specifically, if one individual or entity owns (or has a substantial ownership interest in) several franchises, all those franchises are essentially considered one entity. In this case, for purposes of the 50-FTE rule, the employees in each of the franchises must be added together to determine the number of FTEs. The ACA definition of an employer is based on the common law standard in which a worker is considered to be an employee if the worker is subject to the will and control of the employer not only as to what shall be done but how it shall be done. The potential employer penalty applies to all common law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations that are exempt from federal income taxes. An independent contractor is a worker who controls what will be done and how it will be done and for whom the contract dictates the desired result of the work. The IRS provides further guidance on the distinction between employees and independent contractors. An independent contractor would not be considered an employee for the purposes of the employer penalty calculation. In general, the employer of a temporary agency worker is the employing agency rather than the firm that has contracted with the agency to provide workers on a temporary basis. Hours worked by individuals receiving care under the TRICARE program, or individuals enrolled and receiving coverage through certain Department of Veterans Affairs health care programs, are excluded from calculations to determine if an employer is large. When determining whether a firm meets the ACA definition of an applicable large employer, the hours worked by seasonal employees may be treated differently if (1) an employer would be considered a large employer for fewer than 120 days, and (2) for those days the hours worked by seasonal employees are what push the employer's FTE calculation above 50 FTEs. If these two conditions are met, the employer may exclude the hours worked by seasonal employees and thus would not be considered a large employer. Otherwise, all hours by all employees (including seasonal workers) are applied to determine large-employer status. Regardless of whether a large employer offers coverage, it will be potentially liable for a shared responsibility tax (penalty) only if at least one of its full-time employees obtains coverage through an exchange and receives a premium tax credit. For purposes of determining the penalty, a full-time employee includes only those individuals working on average 30 hours or more per week. As shown in Figure 1 , part-time workers are not included in the penalty calculations (even though they are included in the determination of a ""large employer""). An employer will not pay a penalty for any part-time worker even if that part-time employee receives a premium credit. As discussed under implementation issues below, employers are not likely to pay a penalty based upon seasonal workers receiving a premium credit if they work less than 30 hours on average over a pre-specified time period (up to 12 months). A large employer that does not offer health coverage will be subject to the ACA employer penalty only if any of its full-time employees obtain coverage through an exchange and receive a premium tax credit. In 2016, the monthly penalty assessed to an employer that does not offer coverage is equal to the number of its full-time employees minus 30 multiplied by one-twelfth of $2,160 for any applicable month. That penalty is indexed by a premium adjustment percentage for each calendar year. Large employers that offer health coverage may face a penalty if the employer's coverage fails to meet one of two criteria: 1. Affordability—The individual's required contribution toward the plan premium for self-only coverage cannot exceed 9.66% of his/her household income in 2016. 2. Adequacy—The health plan must pay for at least 60%, on average, of covered health care expenses to be considered adequate. Employers that offer unaffordable or inadequate health insurance coverage do not meet the employer requirements if at least one full-time employee declines the coverage and obtains a premium credit in an exchange plan. The penalty amounts are indexed by a premium adjustment percentage for each subsequent calendar year. In 2016, the penalty payment amount is the lesser of the number of full-time employees who receive a premium credit multiplied by one-twelfth of $3,240 for any applicable month, or the total number of the firm's full-time employees minus 30, multiplied by one-twelfth of $2,160 for any applicable month. As discussed above, the total ACA employer penalty is based on the number of full-time employees. The ACA specified that working 30 hours or more per week is considered full-time. However, the statute did not specify what time period (i.e., monthly or annually) employers would use to determine if a worker is full-time. The ACA directed the Department of Health and Human Services and the Department of Labor to provide regulatory guidance to employers for determining their employees' full-time status. As a result, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, and this 130 hours of service monthly equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status. IRS Notice 2014-9 describes methods that an employer may use to determine which employees are considered full-time employees for purposes of administering the ACA employer penalty provision. There are three distinct periods in the determination process: 1. The measurement period is the number of months when an employer calculates the total number of hours worked by the employee to determine whether the employee must be considered full-time under the ACA. 2. The administrative period is the amount of time an employer may take to identify and enroll full-time employees into the health care coverage. 3. The stability period is the amount of time an employer is required to treat all employees who were determined to be full-time during the measurement period as full-time under the ACA. An employer may be subject to an ACA penalty during this stability period if those designated as full-time employees (from the hours worked during the measurement period) qualify for a health coverage subsidy during this period (regardless of hours worked during the stability period). The IRS notice then allows the employer to choose different methods of determining the measurement, administrative, and stability periods for three groups of workers: ongoing employees; new employees who are reasonably expected to work full-time; and new employees who work variable hours or seasonal jobs. An ongoing employee is an employee who has been employed for at least one complete standard measurement period. This is a defined period of between 3 and 12 consecutive months. (See the transition relief subsection "" Measurement Period "" for an alternative measurement for 2015 only.) An employer determines each ongoing employee's status by looking back at the standard measurement period. The employer has the flexibility to determine the months when the standard measurement period starts and ends, provided that the determination is made on a uniform and consistent basis for all employees in the same category. During a measurement period, the employer determines if the employee worked on average at least 30 hours per week per month. If the employer determines that an employee averaged at least 30 hours per week, then the employer treats the employee as a full-time employee during a subsequent stability period regardless of the number of hours the employee works during the stability period—so long as he or she remains an employee. An employer can be subject to a penalty only during the stability period. Employers may create different measurement and stability periods for the following categories of ongoing employees: collectively bargained and non-collectively bargained employees, salaried and hourly employees, employees of different entities (i.e., controlled groups), and employees located in different states. Employers may opt to use an administrative period (between the measurement and stability periods) to determine which ongoing employees are eligible for coverage and to notify and enroll employees in health care plans. If an employee is reasonably expected at his or her start date to work full-time, an employer must either offer affordable health coverage within three calendar months of the worker's start date or face a potential shared responsibility penalty. The regulations provide that a new employee is a variable hour employee if it cannot be determined that the employee is reasonably expected to be employed on average at least 30 hours per week. In some cases, variable hour employees might not work the necessary 30 hours on average over a specified time period (up to 12 months) to be considered full-time. A new employee who is expected to be employed initially at least 30 hours per week may be a variable hour employee as long as the period of employment at more than 30 hours per week is reasonably expected to be of limited duration. In general, under the ACA an employee may be a seasonal employee if the employee is hired into a position for which the customary annual employment is six months or less and the period of employment begins each calendar year in approximately the same part of the year (e.g., summer or winter). The ACA treats seasonal employees' work hours differently when determining large employer status (where all hours done by seasonal workers are included in the calculation except as described in the "" Calculating Large Employer Status When the Firm Employs Seasonal Workers "" section) and for calculating an employee's full-time worker status. When determining the number of full-time employees for purposes of applying the employer penalty, the final regulations allow employers to employ a look-back measurement period of up to 12 months for determining if seasonal employees are full-time employees. The ability of employers to use a 12-month measurement period for seasonal employees (who by definition work usually fewer than six months per year at the job) effectively allows most firms to exclude seasonal workers as full-time workers even if their hours were used in calculating the employer's size. The Treasury Department and the IRS continue to consider additional rules for determining hours of service for purposes of Section 4980H regarding certain categories of employees. The IRS guidance requires employers to determine full-time status for adjunct faculty, employees with layover hours (including the airline industry), and employees with on-call hours to use a ""reasonable method"" of crediting hours of service that is consistent with Section 4980H of the IRC. The guidance states that it would not be reasonable for an employer to not credit an employee with an hour of service for any on-call hour if the employer pays the employee for that hour, the employee is required to remain on-call on the employer's premises, or the employee's activities while remaining on-call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee's own purposes. In addition, employers of other employees whose hours of service are particularly challenging to identify or track or for whom the final regulations' general rules for determining hours of service present special difficulties (e.g., commissioned sales) are also required to use a ""reasonable method"" of crediting hours. The hours of service performed in certain capacities do not count as an hour of service for determining either employer size or full-time status. In particular, the hours worked by unpaid volunteers and certain nominally compensated volunteers (including some volunteer firefighters) are excluded from ACA calculations. The hours worked by students in positions subsidized through the federal work study program (or equivalent) are excluded from ACA calculations. However, the final regulations do not expand this exclusion into a general exception for all student employees. All hours of service for which a student employee of an educational organization (or of an outside employer) is paid or entitled to payment in a capacity other than through the federal work study program (or equivalent) are required to be counted as hours of service for Section 4980H purposes. The Treasury Department and the IRS continue to consider additional rules for determining hours of service for purposes of Section 4980H of the IRC regarding hours worked by members of religious orders. Until further guidance is issued, a religious order is permitted, for purposes of determining whether an employee is a full-time employee under Section 4980H, to not count as an hour of service any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required (and to the extent usually required) of an active member of the order. To fulfill the shared responsibility requirements, employers must provide health insurance coverage that is both affordable and adequate to full-time employees and their dependents. For purposes of the provision, the term dependent means a child under 26 years old of an employee. Absent knowledge to the contrary, applicable large employers may rely on an employee's representation about that employee's children and their ages. The term dependent does not include the spouse of an employee. Employer coverage is deemed affordable if the employee's portion of the self-only premium for the employer's lowest-cost health coverage plan does not exceed 9.66% of the employee's W-2 wages . Affordability is determined at an individual level. The definition of affordable—for both an individual employee and a family—is based only on the cost of individual-only coverage and does not take into consideration the often significantly higher cost of a family plan. Under the ACA, a plan is considered to provide adequate coverage (also called minimum value) if the plan's actuarial value (i.e., share of the total allowed costs that the plan is expected to cover) is at least 60%. The actuarial value calculation for determining minimum value includes the employer contributions to health savings accounts and health reimbursement accounts that are part of a high deductible health plan. The ACA, as written, required that the employer shared responsibilities begin to be implemented in 2014. However, the IRS delayed the employer mandate implementation until 2015. There were up to three forms of transition relief available for employers in 2015. First, large employer status determination was allowed to have a measurement period as short as six consecutive months. Second, there was an additional year to expand the 2015 health plans to include dependent coverage. Finally, for employers with fewer than 100 FTEs, the ACA employer penalty did not apply in 2015. (For details see the following section "" Employers with Fewer Than 100 FTEs ."") In addition, there were similar delays in the employer reporting requirements for 2014. Beginning in 2015, a large employer must file a return with the IRS reporting certain information about the health care coverage the employer offered to each full-time employee (or alternatively, that the employer did not offer health care coverage to that employee). Additionally, large employers must furnish a similar statement to each full-time employee by January 31 of the following calendar year. (See Appendix A for details.) In 2015, rather than being required to use the full 12 months of 2014 to measure whether an employer has 50 FTEs, an employer was allowed to measure any consecutive six-month period during 2014. An employer that took steps toward offering dependent health coverage in 2015 was not subject to the ACA employer penalty solely on account of a failure to offer coverage to dependents for that plan year. This transition relief applied to health plans offered by an employer if dependent coverage is not offered, is not adequate, or is offered for some but not all dependents. Employers could qualify for the dependent coverage transition relief only for those dependents who were without an offer of coverage from the employer in both the 2013 and 2014 plan years and if the employer had taken steps in either the 2014 or 2015 plan year (or both) to extend coverage to dependents not offered coverage in 2013 or 2014. For employers with fewer than 100 FTEs in 2014, the ACA employer penalty did not apply for any calendar month during the 2015 plan year, including the months during the plan year that fell in 2015. This transition relief applied only if the workforce size was fewer than 100 FTEs, the employer had not reduced its workforce size to qualify for relief, and the employer maintained health care coverage in 2015 that had been offered in 2014. The employer must have employed on average at least 50 FTEs but fewer than 100 FTEs on business days during 2014 in order to qualify for transition relief. The number of full-time employees (including FTEs) was determined in accordance with the otherwise applicable rules in the final regulations for determining status as an applicable large employer. The employer could not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief. However, an employer that reduced workforce size or overall hours of service for bona fide business reasons was still eligible for the relief. The employer could not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014, in order to qualify for transition relief. The maintenance requirement must have been met for the period beginning on February 9, 2014, and ending on December 31, 2015. (Employers with non-calendar-year plans must have met the maintenance requirement through the last day of the 2015 plan year.) An employer was not treated as eliminating or materially reducing health coverage if any of these conditions were met: It continued to offer each employee who was eligible for coverage an employer contribution toward the cost of employee-only coverage that either (1) was at least 95% of the dollar amount of the contribution toward such coverage that the employer was offering on February 9, 2014, or (2) was at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014; In the event of a change in benefits under the employee-only coverage offered, that coverage provided minimum value after the change; and It did not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees' dependents) to whom coverage under those plans was offered on February 9, 2014. Appendix A. Employer Reporting and Other Requirements Under Section 6056 of the IRC, a large employer must file a return with the IRS reporting certain information about the health care coverage the employer offered to each full-time employee (or alternatively, that the employer did not offer health care coverage to that employee). In addition, Section 6051(a)(14) of the IRC requires that large employers must furnish a similar statement to each full-time employee by January 31 of the following calendar year. In summary, large employers must provide the following information to their full-time employees: the existence of an exchange, including services and contact information; the employee's potential eligibility for premium credits and cost-sharing subsidies if the employer plan's share of covered health care expenses is less than 60%; and the employee's potential loss of any employer contribution if the employee purchases a plan through an exchange. Large employers must provide the following to the IRS: a return including the name, address, and employer identification number; a certification as to whether the employer offers its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; the length of any waiting period; months coverage was available; monthly premiums for the lowest-cost option; the employer plan's share of covered health care expenses; the number of full-time employees; the name, address, and tax identification number of each full-time employee; and information about the plan for which the employer pays the largest portion of the costs (and the amount for each enrollment category). In addition, the employer must also provide each full-time employee the following: a written statement showing contact information for the person required to make the above IRS return and the specific information included in the W-2 return for that individual. On November 2, 2015, P.L. 114-74 , the Bipartisan Budget Act of 2015, repealed the automatic enrollment requirement in Section 18A of the Fair Labor Standards Act (FLSA). This provision had been added by Section 1511 of the ACA. The automatic enrollment provision would have required an employer (covered under the FLSA) with more than 200 full-time employees to automatically enroll new full-time employees in one of the employer's health benefits plans and continue the enrollment of current employees. Additionally, employers would have had to provide adequate notice and the opportunity for employees to opt out of any automatically enrolled coverage. Appendix B. Related Legislative Activity in the 114 th  Congress In the 114 th Congress, Section 4007 of P.L. 114-41 (the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law on July 31, 2015) created a new requirement that hours worked by individuals receiving care under the TRICARE program or individuals enrolled and receiving coverage through certain Department of Veterans Affairs' health care programs are excluded from calculations to determine if an employer is large. In the 114 th Congress, many bills have been introduced related to the employer mandate (including H.R. 3236 , which was signed into law as P.L. 114-41 , and H.R. 1314 , which was signed into law as P.L. 114-74 ). See Table B-1 for details.","The Affordable Care Act (ACA) creates shared responsibilities for both employers and individuals with regard to health insurance coverage. The ACA expands federal private health insurance market requirements and requires the creation of health insurance exchanges to provide individuals and small employers with access to insurance. This report examines the new employer responsibilities. To ensure that employers continue to provide some degree of health coverage, the ACA includes a ""shared responsibility"" provision. This provision does not require that an employer offer employees health insurance; however, the ACA imposes penalties on a ""large"" employer if at least one of its full-time employees obtains a premium credit through the newly established exchange. As of 2015, employers with at least 50 full-time equivalent (FTE) employees are subject to the shared responsibility provisions. However, in 2015 only, employers with between 50 and 100 FTE employees were eligible for transition relief if certain criteria were met. The ACA sets out a multi-stage process for determining, first, which firms may be subject to the penalty (i.e., definition of large), and second, which workers within a firm would trigger the penalty. Complex calculations and multiple definitions of full-time work have led to confusion among policymakers and employers. This report discusses these definitions and the application to the employer penalty in greater detail. The potential employer penalty applies to all common law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations that are exempt from federal income taxes. If multiple businesses are owned by one individual or entity, employees in each of the franchises must be aggregated to determine the number of both FTEs and full-time employees. The actual amount of the penalty varies depending on whether an employer currently offers insurance coverage and the number of full-time employees. Employers must provide both affordable and adequate health insurance coverage to avoid paying a penalty. Coverage is considered affordable if the employee's required contribution to the plan does not exceed 9.66% of the employee's household income for 2016. However, the Internal Revenue Service (IRS) allows employers to use the employee's W-2 income in lieu of household income for this calculation (because most employers do not readily have information on an employee's household income). A health plan is considered to provide adequate coverage if the plan's actuarial value (i.e., the share of the total allowed costs that the plan is expected to cover) is at least 60%. The total penalty for any applicable large employer is based on its number of full-time employees. The ACA specified that working 30 hours or more per week is considered full-time. Employers have some flexibility to designate certain measurement or look-back periods (up to 12 months) during which they calculate whether a worker is full-time or not. Once an employee is determined to be full-time, there is an administrative period to enroll employees in a health plan, if necessary. If an employer penalty is levied under the ACA requirements, it applies only for the time period following the administrative period, which is called the stability period. An employer is not penalized if an employee enters the exchange and receives a premium credit during the measurement period. Appendix A provides a list of employer reporting requirements. Appendix B includes a table of relevant legislation introduced in the 114th Congress."
"Under the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( P.L. 93-288 ) there are two principal forms of presidential action to authorize federal supplemental assistance: emergency declarations and major disaster declarations. Emergency declarations are made to protect property and public health and safety and to lessen or avert the threat of a major disaster or catastrophe. Emergency declarations are often made when a threat is recognized (such as the emergency declarations for Hurricane Katrina which were made prior to landfall) and are intended to supplement and coordinate local and state efforts prior to the event such as evacuations and protection of public assets. In contrast, a major disaster declaration is made as a result of a disaster or catastrophic event and constitutes a broader authority that helps states and local communities, as well as families and individuals, recover from the damage caused by the event. The differences between the two forms of declarations remain an area of study regarding what events, and specifically what types of incidents may or may not qualify for the respective declarations. Federal disaster assistance has served as the impetus for many supplemental appropriations bills over the last several decades, and has accounted for presidential declarations in every state and territory. The supplemental funds are placed in the Disaster Relief Fund (DRF) which is a ""no-year"" fund managed by the Federal Emergency Management Agency (FEMA) and used only for spending related to presidentially declared disasters. Major disasters can be a dominant story in the mass media that captures attention both for the devastation that results as well as the potential help that is expected. As one observer noted: Disaster assistance is an almost perfect political currency. It serves humanitarian purposes that only the cynical academic could question. It is largely funded out of supplemental appropriations and thus does not officially add to the budget deficit. It promotes the local economy of the area where the building process occurs. While disaster assistance may be good ""political currency,"" a disaster declaration is generally the result of a tragic and devastating incident that disrupts (and sometimes takes) the lives of hundreds or thousands of families and individuals and the communities and states or tribal lands where they reside. The long-term economic and environmental impact of a disaster can be severe. The assistance offered from federal and private sources may or may not be commensurate with the damage inflicted by a natural or man-made event. Following a disaster, years of rebuilding and recovery work may lie ahead for communities, tribes, and states. It is the declaration process that sets the federal recovery help in motion. The trigger for federal disaster assistance is contained in a relatively short statutory provision. P.L. 93-288 (the Stafford Act) includes one brief section that establishes the legal requirements for a major disaster declaration which has now been amended to include tribal requests: Section 401. (a) In general. Procedures for Declaration. All requests for a declaration by the President that a major disaster exists shall be made by the Governor of the affected state. Such a request shall be based on a finding that the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that the federal assistance is necessary. As a part of such request, and as a prerequisite to major disaster assistance under this Act, the Governor shall take appropriate response action under state law and direct execution of the state's emergency plan. The Governor shall furnish information on the nature and amount of State and local resources which have been or will be committed to alleviating the results of the disaster and shall certify that, for the current disaster, state and local government obligations and expenditures (of which state commitments must be a significant proportion) will comply with all applicable cost-sharing requirements of this Act. Based on the request of a Governor under this section, the President may declare under this Act that a major disaster or emergency exists. (b) Indian tribal government requests (1) In general. The Chief Executive of an affected Indian tribal government may submit a request for a declaration by the President that a major disaster exists consistent with the requirements of subsection (a). (2) References. In implementing assistance authorized by the President under this chapter in response to a request of the Chief Executive of an affected Indian tribal government for a major disaster declaration, any reference in this subchapter or subchapter III (except sections 5153 and 5165d of this title) to a State or the Governor of a State is deemed to refer to an affected Indian tribal government or the Chief Executive of an affected Indian tribal government, as appropriate. (3) Savings provision. Nothing in this subsection shall prohibit an Indian tribal government from receiving assistance under this subchapter through a declaration made by the President at the request of a State under subsection (a) if the President does not make a declaration under this subsection for the same incident. (c) Cost share adjustments for Indian tribal governments (1) In general. In providing assistance to an Indian tribal government under this subchapter, the President may waive or adjust any payment of a non-Federal contribution with respect to the assistance if— (A) the President has the authority to waive or adjust the payment under another provision of this subchapter; and (B) the President determines that the waiver or adjustment is necessary and appropriate. (2) Criteria for making determinations The President shall establish criteria for making determinations under paragraph (1)(B). The process for an emergency declaration is also contained in the Stafford Act. In part it is similar to a major disaster declaration in finding and process, but the actual authorities are limited. In addition, section (b) provides for a special authority for the President to exercise his discretion for events that have a distinctly federal character: Sec. 5191. Procedure for declaration. (a) Request and declaration. All requests for a declaration by the President that an emergency exists shall be made by the Governor of the affected State. Such a request shall be based on a finding that the situation is of such severity and magnitude that effective response is beyond the capabilities of the State and the affected local governments and that Federal assistance is necessary. As a part of such request, and as a prerequisite to emergency assistance under this chapter, the Governor shall take appropriate action under State law and direct execution of the State's emergency plan. The Governor shall furnish information describing the State and local efforts and resources which have been or will be used to alleviate the emergency, and will define the type and extent of Federal aid required. Based upon such Governor's request, the President may declare that an emergency exists. (b) Certain emergencies involving Federal primary responsibility. The President may exercise any authority vested in him by section 5192 of this title or section 5193 of this title with respect to an emergency when he determines that an emergency exists for which the primary responsibility for response rests with the United States because the emergency involves a subject area for which, under the Constitution or laws of the United States, the United States exercises exclusive or preeminent responsibility and authority. In determining whether or not such an emergency exists, the President shall consult the Governor of any affected State, if practicable. The President's determination may be made without regard to subsection (a) of this section. (c) Indian tribal government requests (1) In general. The Chief Executive of an affected Indian tribal government may submit a request for a declaration by the President that an emergency exists consistent with the requirements of subsection (a). (2) References. In implementing assistance authorized by the President under this subchapter in response to a request of the Chief Executive of an affected Indian tribal government for an emergency declaration, any reference in this subchapter or subchapter III (except sections 5153 and 5165d of this title) to a State or the Governor of a State is deemed to refer to an affected Indian tribal government or the Chief Executive of an affected Indian tribal government, as appropriate. (3) Savings provision. Nothing in this subsection shall prohibit an Indian tribal government from receiving assistance under this subchapter through a declaration made by the President at the request of a State under subsection (a) if the President does not make a declaration under this subsection for the same incident. The declaration process is elaborated upon in regulations, specifically in Subpart B of 44 C.F.R. 206. While these regulations have been adjusted through the regulatory process during the past three decades, since 1974 the procedures have undergone little significant change until the inclusion of tribal groups in P.L. 113-2 . The process itself is representative of the historical progression of federal disaster relief from being of an episodic nature to the current commonplace disaster declaration, now occurring on a weekly basis. The context in which disaster relief has grown has been in keeping with the growth of government and its concerns. Federal disaster relief has a long history in the U.S. dating back to the last years of the eighteenth century and arguably provided much of the political genesis for the New Deal social welfare programs (Landis 1999; Landis 1998; Moss 1999). As Michele Landis argues, social and political construction of claimants for relief as helpless victims of external forces beyond their control (""Acts of God"") have exerted an enduring influence on American political discourse, which has manifested itself in heavy reliance on prior political precedents and analogies in constructing responses to current disasters. Policy makers have found it difficult to achieve equity in the treatment of disparate natural disaster events. The events can vary widely in their type, scope, duration, and impact. Perhaps the greatest variables are the states and tribal groups they affect. Each state or tribe has a different topography, a different history, and different capacities to respond and recover based on their own authorities, resources, and choices in what they will do following a disaster. Given those variations, including social and economic differences as well, it is a daunting task to construct a uniform process that can account for the range of natural and governmental circumstances that are a part of the nation's potential disaster landscape. The process begins with a decision by the governor or tribal head on whether to conduct a Preliminary Damage Assessment (PDA) to consider whether a request for supplemental assistance is warranted. Information contained in the PDAs, along with the summaries prepared by FEMA regional offices that accompany gubernatorial requests, were long considered ""pre-decisional and deliberative information"" by the executive branch because they are part of the package that is developed and sent to the White House for the President's review and ultimate decision. These materials have generally not been available under the Freedom of Information Act process. However, during 2008, at the direction of Congress, FEMA began to list the results of the PDAs on its website. While the summaries of FEMA recommendations are still not available, the agreed-upon figures from the PDAs are now available to the public for review. In the 113 th Congress, following Hurricane Sandy, Congress passed the Sandy Recovery Improvement Act of 2013 (SRIA), P.L. 113-2 . The act made one significant change to the Stafford Act declaration process. That significant change was one that Native Americans had long sought: the ability to directly request assistance from the federal government during times of disaster, rather than having to submit any requests through the governors of the affected tribal areas. Section 1110 of the SRIA amends Sections 401 and 501 of the Stafford Act that contain the procedures for requesting types of disaster declarations. Previously, tribal groups were treated as local governments and thus not permitted to directly request disaster declarations from the federal government. As with local governments, the tribes were dependent on a request being made by the governor of the state where their territory is located. Tribal governments argued that the previous provision in the Stafford Act undermined their independence and sovereignty. This change in declaration policy for tribal groups had also been sought by FEMA to strengthen its government-to-government relationships with tribal groups and improve emergency management in those areas. As FEMA Administrator Craig Fugate stated in post-SRIA testimony before the Senate Indian Affairs Committee: The updated policy reiterates the Agency's view of tribal governments as inherently sovereign nations and not political subdivisions of states. To this end, and to the extent permitted by law, FEMA consults with tribal governments and addresses any concerns before taking actions that may affect those nations. In addition, the new policy expressly states that FEMA will identify and take reasonable, appropriate steps to eliminate or diminish procedural impediments to working directly and effectively with tribal governments. In particular, the policy states that FEMA will review portions of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, and other laws, policies, and administrative rules in emergency management activities to determine how FEMA may work more directly with local tribal communities. Previously, the Stafford Act included the description of ""an Indian tribe or authorized tribal organization, or Alaska Native village or organization"" in the definition of local governments. With this amendment, tribes are now equivalent to states in their ability to request a major disaster declaration or an emergency declaration from the President. Tribes had sought this authority for various reasons. While tribes and Native Americans have long received assistance under Stafford Act declarations, working through the state government for all assistance has been viewed as an issue of tribal sovereignty. States might at times be reluctant to make a request on behalf of a tribe when the damage was localized on tribal property. Other challenges to administering disaster relief involved language barriers and the physical isolation of some tribal lands. Also, the tribes wished to have the same ability as states to help manage the response and recovery from a disaster. All of these factors created challenges for emergency management following disaster events in tribal areas. Under the SRIA amendment (Sec. 1110) to the Stafford Act, the ""Chief Executive of an Indian Tribal Government"" is able to submit a request for a declaration by the President. In addition, the ""Savings provision"" of this section ensures that a tribal government is not prohibited from receiving assistance under a declaration made by the President at the request of the governor, if the President has not made a separate declaration for the tribal government. In effect, a tribal government will retain the ability to be treated as a local government in those situations. In implementing this new provision, FEMA sent out guidance, along with a ""Frequently Asked Questions"" document and related information to assist tribes in participating in this process. FEMA also provided tribes with the FEMA template that is used by governors to generate and submit their requests for either a major disaster or an emergency declaration. In addition, FEMA reports that both headquarters and regional staff are involved in extensive outreach efforts across the nation to meet with tribes and discuss processes and other considerations as these new partnerships are established. In the time since the passage of this authority in the SRIA legislation, there have been six major disaster declarations by the President made to five separate tribal authorities. The broader question of how the federal disaster declaration process should work has come to the attention of Congress from time to time. Congress has requested reports from its investigative arms and investigated the process through panels that have, at various times, considered aspects of the disaster relief process. Various Administrations have also considered the process and FEMA's role in it. In 1981, and again in 2001, GAO issued reports on the declaration process that questioned the quality and consistency of FEMA's assessment criteria, as well as the agency's ability to produce valid recommendations to the President based on a governor's request for supplemental aid. As the most recent report (2001) concluded: These criteria are not necessarily indicative of a state's ability to pay for the damage because they do not consider the substantial differences in states' financial capacities to respond when disasters occur. As a result, federal funds may be provided for some disasters when they are not needed—a result that would be inconsistent with the Stafford Act's intent. Congressional interest in the declaration process is derived, in part, from the increased cost in emergency spending—a recurring subject for the appropriations committees when considering supplemental spending legislation. One review of disaster funding, particularly supplemental appropriations, found that the great majority of DRF spending is related to the large, catastrophic events that meet the criteria established in the Stafford Act. These supplementals have been ""driven"" by the urgency of large natural disasters. As one report explains, In the past, funds in the DRF were often depleted before the end of the fiscal year due to disaster assistance needs. When the account nears depletion, Congress usually provides additional funding through one or more supplemental appropriations. The need for additional funds is generally caused by a large-scale, major disaster such as Hurricanes Katrina or Sandy. In recent years, however, the need for assistance has been increasingly tied to a string of incidents as opposed to a single, large event. A review of data for a seven-year period from 1988 to 1995 revealed that large expenditures, as funded by supplemental bills, relate to declarations issued for the largest events. During this time period, disaster declarations were made for Hurricane Hugo, the Loma Prieta earthquake, Hurricane Andrew, the Midwest floods of 1993, and the Northridge earthquake. This trend continued with large supplemental funding bills for Hurricanes Katrina and Sandy. However, these were not the only events deemed worthy of presidential action and of cost to the federal treasury. As summarized by one author: But like the tail of a comet, over 200 other declarations accounted for one quarter of such outlays, many of them of relatively minute cost and extent. While of lesser impact on the national treasury, such ""low end"" declarations have become, to some observers, new sources of federal spending at the local level, long referred to in other contexts as ""pork barrel spending."" Congress has taken a significant step to address disaster funding and establish a reliable budgetary process for it through the Budget Control Act (BCA). The BCA has put annual appropriations for the DRF at a higher level and also established a process that would permit allowable budget adjustments for disaster spending. But the Sandy experience also demonstrated that Congress was still willing to place some spending for catastrophic events outside of the budget process. But regardless of the DRF's budget at any given time, an interest remains in how the declaration process works: its pace, its thoroughness, and its fairness. During early 2001, the term ""entitlement"" was beginning to be used in describing federal disaster spending by the new Bush Administration. Underlining this thinking in his first appearance before the Senate Appropriations Committee, FEMA Director Joe M. Allbaugh explained: FEMA is looking at ways to develop a meaningful and objective criteria for disaster declarations that can be applied consistently. These criteria will not preclude the President's discretion but will help states better understand when they can reasonably turn to the federal government for assistance and when it would be more appropriate for the state to handle the disaster itself. During the 110 th Congress, attention was given to the disaster declaration process and what states and local governments can reasonably expect from that process. During the early spring of 2007, there were tornadoes that had an impact on Arkansas, Alabama, and Georgia. The latter two states received disaster declarations while the damage in Arkansas was deemed insufficient to warrant federal assistance. Following these actions, Chairman Bennie Thompson of the House Homeland Security Committee scheduled a hearing to review FEMA's procedures. Representative Thompson set the context as follows: As Members representing real communities back home, we want to understand just how FEMA makes determinations regarding what is a disaster deserving of attention and when folks have to fend for themselves. Quite simply, we must have a serious discussion on what our expectations are of our federal government and what should remain a state and local responsibility. In order to examine the process and the financial projections of disaster spending in particular, Congress mandated in P.L. 110-28 , a 2007 supplemental appropriations bill, that GAO study how FEMA develops its estimates for supplemental funding that may be needed. Report language detailed these instructions for the review: The Committee continues to be concerned with FEMA's ability to manage resources in a manner that maximizes its ability to effectively and efficiently deal with disasters. One aspect of particular concern is how FEMA makes projections of funding needed in response to any given disaster or to meet future disasters. A recent Government Accountability Office (GAO) report raised concerns about FEMA's ability to manage its day-to-day resources and the lack of information on how FEMA's resources are aligned with its operations. As a follow-up to this report, the Committee requests that within six months of enactment GAO review how FEMA develops its estimates of the funds needed to respond to any given disaster. Such review should include how FEMA makes initial estimates, how FEMA refines those estimates within the first few months of a disaster, and how closely FEMA's estimates predict actual costs. The review should also include additional analysis and recommendations regarding FEMA's ability to manage disaster-related resources in a manner that maximizes effective execution of its mission. The study parameters mandated by Congress were broader than the declaration process, placing its emphasis on ongoing FEMA spending, including the refinement and revision of early estimates as well as the general management of spending projections for the Disaster Relief Fund (DRF). But the report language recognized the importance of the initial estimates in decision-making, and that the declaration process represents the fundamental decision to both establish federal participation following a disaster, and provide the initial estimated amount of resources needed that informs that decision. GAO's eventual report in response to this request suggested that FEMA's estimates for disaster costs have improved but could use additional refinement; for example some of the factors that can lead to changes in FEMA's cost estimates are beyond its control, such as the discovery of hidden damage. Others are not, such as its management of mission assignments. Sensitivity analyses to identify the marginal effect of key cost drivers could provide FEMA a way to isolate and mitigate the effect of these factors on its early estimates. To better predict applicant costs for the Individual Assistance program, FEMA could substitute or add more geographically specific indicators for its national average. During the 111 th Congress, a hearing before the House Homeland Security Committee focused on FEMA's regional offices and also elicited comments regarding the relative speed, and perceived lack of transparency, of the declaration process. The comments came from both a committee member and a state official closely involved in the process. Ranking Republican Mike D. Rogers of Alabama questioned the timeliness of FEMA's disaster declarations. Declarations that should take a few days often take a month or longer, and a lack of available information on the status of requests only adds to state officials' frustration, said Brock Long, director of Alabama's Emergency Management Agency. ""When we make phone calls to the region or to headquarters, a lot of time the answer we get is 'the declaration request is in process' and that's it,"" Long said. Recent articles have noted the increase in disaster declarations and have suggested that it may be a political decision that is placing more responsibility for response and recovery on the federal government while minimizing state responsibility. As one report noted: FEMA spends too much time responding to routine natural disasters and not enough time preparing for catastrophic natural disasters, such as hurricanes, earthquakes, and volcanic eruptions, which could have a national impact. This is increasing the likelihood that the federal response to the next catastrophic event will be insufficient. Congress should reduce the cost-share provision for all FEMA declarations to no more than 25 percent of the costs. This will help to ensure that at least three-fourths of the costs of a disaster are borne by the taxpayers living in the state where the disaster took place. One difficulty in addressing such a recommendation is defining ""routine natural disasters."" The nature of the disaster can depend on the location. From afar, the incident may seem marginal but up close it may appear catastrophic. The notion of ""routine natural disasters"" is also dependent on state and local resources and capacities. While the devolution of responsibility to state governments may prove effective in some states, it also may not be consistent. As one expert noted, some consistency in approach from the federal government is desirable. Federal guidance, technical assistance and incentives aim at addressing these disparities. How would the public feel about having an uneven patchwork of state policies, practices and capabilities? Under state control and with all the financial pressures experienced by states, would we see a ""race to the bottom"" in disaster loss reduction programs? The following section discusses similar proposals as the one mentioned above regarding FEMA disaster cost-shares, including one made by FEMA, and the reaction of Congress to that approach. There have been several proposals to impose more stringent regulations on the declaration process in an attempt to more precisely assess disaster impacts, calculate eligible damage, and incorporate some measure of suffering and loss. Differing perceptions of the declaration process resulted in different reactions to these proposed reforms. The history of the disaster declaration process is rife with reform efforts that were perceived by some not as reform but as punitive measures directed at certain constituencies. Some of those differing perceptions were held by those closest to the event at the local level that had experienced a disaster. A different perception was also often held by governors who wanted to protect their option to request federal help. These perceptions were also shared, in some instances, by Members of Congress representing affected areas. All elected officials argued, in various forms, that reform should not impede the delivery of needed federal aid. One example, now in law, of the desire to reform but not obstruct the declaration process is in the Post-Katrina Emergency Management Reform Act (PKEMRA) of October of 2006. That statute created a new position at FEMA: the Small State and Rural Advocate. One of the principal duties of the advocate is to ensure that the needs of smaller states and rural communities will be ""met in the declaration process""; the advocate is also directed to ""help small states prepare declaration requests, among other duties."" Another example was FEMA's response to recommendations from GAO's 1981 report. FEMA drafted regulations in 1986 that would have been more certain in their delineation of state requirements prior to a declaration, reduced overall federal contributions, and would have installed a formula to determine whether a state would receive a presidential disaster declaration for repairs to state and local infrastructure (known as ""public assistance"" in the Stafford Act). As the congressional report on the initiative summarized the FEMA draft: The proposal would have limited the number of future presidential declarations by establishing a ""state deductible"" based on a per capita minimum dollar amount adjusted by the ratio of the state/local price index to the national index. Of 111 declarations issued in prior years, 61 would have been ineligible for any public assistance. FEMA also proposed to decrease the federal share for disaster costs from 75 percent to 50 percent and to exclude aid to special districts. The FEMA proposal of over 25 years ago addressed some of the problems identified by current critics of the declaration process. However, some Members of Congress viewed this proposal as a means of removing the power of discretion from elected leadership. Rather than apply the empirical solution suggested by FEMA to perceived problems in the declaration process, Congress instead legislated a provision to explicitly forbid the primacy of any ""arithmetic formula."" In place of agreeing to the regulatory changes in the formula proposed by FEMA and the Administration, Congress added the following section to the Stafford Act: Limitation on the Use of Sliding Scales. Section 320. No geographic area shall be precluded from receiving assistance under this Act solely by virtue of an arithmetic formula or sliding scale based on income or population. While enactment of this legislation halted FEMA's efforts, the issue did not disappear. As discussed below, FEMA has since adopted regulations that use, but not ""solely,"" arithmetic formulae in determining need for assistance. While some public discussion involves consideration of ways to reduce the number of declarations it should also be noted that there are also some legislative initiatives that could increase the number of declarations while seeking more equity in the process. (See "" Localized Impacts "" in this report.) The declaration process contains many factors for consideration and, for all but the most catastrophic events, the process moves at a deliberate speed accumulating information from several sources. While the process is informed by that information and its relationship to potential assistance programs, the information that is gathered at the state and local level does not preclude the exercise of judgment by the tribal leader, governor, or the President. Actions by a governor or tribal leader are a driving constant in this process. Both major disaster and emergency declarations must be triggered by a request to the President from the governor of the affected state or the tribal leader of the lands affected. The President cannot issue either an emergency or a major disaster declaration without a gubernatorial or tribal request. The only exception to this rule is the authority given to the President to declare an emergency when ""he determines that an emergency exists for which the primary responsibility for response rests with the United States because the emergency involves a subject area for which, under the Constitution or laws of the United States, the United States can exercise exclusive or preeminent responsibility and authority."" The Stafford Act stipulates several procedural actions a governor or tribal leader must take prior to requesting federal disaster assistance (including the execution within the state of the state emergency plan and its tribal equivalent, and an agreement to accept cost-share provisions and related information-sharing). Still, the process leaves broad discretion with the tribal leader or the governor if he or she determines that a situation is ""beyond the capabilities of the state."" The concession that a state or tribe can no longer respond on its own is difficult to quantify. It is the governor or tribal leader who makes that assessment, based on his or her knowledge of state or tribal resources and capabilities. The importance of governors or tribal leaders in the process is not lost on, nor would it likely be diminished by, Presidents who were formerly governors. Over the last three decades of Stafford Act implementation, four of the Presidents during this period were former governors who had worked through the disaster declaration process from both the state and the federal level. Also, when considering the declaration process it should also be considered that tribes and state are responding to emergency and disaster events on a daily basis. Figures provided by the National Emergency Management Association (NEMA) show that states responded to 205 gubernatorial emergencies during FY2013 and 250 such events in FY2011. Those numbers are far in excess of the 62 federal major disaster declarations in 2013 and 99 declarations in 2011. Having that experience may have left the Presidents, and their staffs and appointees, with an appreciation of the discretionary authority inherent in the process. While there are some established standards in the law, the factors that are to be weighed in considering the impact of a disaster on the need for assistance for families and individuals are general considerations that underscore the judgment required to reach a decision. As one observer noted of the decision for general, flexible considerations: In other words, Congress likes to keep the process imprecise, even if benefits occasionally go to the undeserving. The absence of objective criteria preserves wide political discretion to the president. Congress also has among its number former governors who have exercised this discretion at the state level. Still, despite the interest some may have in keeping ""the process imprecise,"" some Members of Congress express disappointment at times with the exercise of the discretion and the general nature of the considerations. As noted previously in this report, that disappointment has been reflected in hearings that have focused on how the disaster declaration process works in practice. In the declaration process, FEMA develops a recommendation that is sent to the White House for action. However, as implied, it is a recommendation from FEMA and the Department of Homeland Security (DHS). The final action, as stated in law and defined in the regulations of the process, is a ""Presidential determination."" Just as the governor or tribal leader retains the discretion to request federal assistance regardless of thresholds or indicators, the President retains the discretion to make a decision that may be counter to recommendations he receives. The number of major disaster declarations on average has been increasing over the last several decades. Between 1990 and 1999 there were 460 major disaster declarations. The next decade, from 2000 to 2009, the number of declarations increased to 568. Now, just four years into the next decade there have already been 307 declarations. It is of interest that even during an era of constant public discussion of climate change and its impact and repercussions, often times the increased number of declarations is attributed to raw politics. As one expert opined Politics appears to make a difference at the margins. Large disasters always receive federal aid, but political interests determine whether smaller states receive federal dollars or have to make due on their own. For example, in 1994, Bill Clinton refused to provide aid for recovery for floods that caused $6.7 million damage on the South Side of Chicago. A year later, Clinton did provide aid to New Orleans, when a flood caused $10 million in damage. The difference was that Illinois was considered a solidly democratic state and therefore not valuable to Clinton's re-election efforts, whereas Louisiana was deemed a competitive state. Because natural disasters are so frequent, politicians in every part of the country use them to deliver federal aid. Several points are interesting in the assumptions made referenced above. This assessment of how declarations are made does not include the various factors that are considered for either Public Assistance or Individual Assistance. These factors have been in regulation since 1999 and are discussed in more detail later in this report. Those factors, at base, consider the size and relative capacity of a state and local area. Rather than reviewing regulatory frameworks for disaster recommendations, the default assumption appears to be the primacy of politics. Similar suggestions of political influence have been suggested by others. Two researchers asserted that presidential and congressional influence have an impact on the decisions for declarations and spending. We find that presidential and congressional influences affect the rate of disaster declaration and allocation of FEMA disaster expenditures across states. States politically important to the President have a higher rate of disaster declaration by the President, and disaster expenditures are higher in states having congressional representation on FEMA oversight committees. While those findings comported with suspicions or assumptions of political corruption of the disaster declaration process and disaster spending, follow-up studies have questioned those assumptions. As two other researches have noted: There was no statistical evidence to suggest that gubernatorial and presidential party similarity, U.S. House of Representatives and presidential party similarity, FEMA congressional oversight committee membership, electoral votes, or FEMA regional office location influenced success in securing emergency or major disaster declarations. Another researcher who has closely followed disaster declaration activity noted the declining rate of turn-downs for governors' requests and concluded: Since 1989, following adoption of the Stafford Act, the odds that the president will approve a governor's request have risen to about four in five (80.3 percent) chance. Certainly the broader authority to judge what is or is not a disaster under the Stafford Act has provided presidents since 1988 with more latitude to approve unusual or ""marginal"" events as disasters or emergencies. This may be one reason for the higher rate of gubernatorial request approvals since 1988. An additional reason for the increase in approvals may also rest with the increasing capacity of states to make effective requests; states continue to better understand FEMA's review process, based on regulations in place, and can anticipate what would likely constitute a request that would result in a declaration. This is in part a testament to the growing maturity and sophistication of the emergency management area as a field of study and profession. It may also be a reflection of the ongoing relationship between state and tribal emergency management offices and FEMA regional offices that may provide states and tribes with a better understanding of what may or may not constitute a successful request. Although not explicitly mentioned in the Stafford Act, Preliminary Damage Assessments (PDAs) are a crucial part of the process of determining if an event may be declared a major disaster by the President. The minimal discussion of PDAs in the public record stands in inverse proportion to their impact on disaster decisions and subsequent expenditures from the Disaster Relief Fund (DRF). When a PDA is conducted after an event it is the ""mechanism used to determine the impact and magnitude of damage and the resulting unmet needs of individuals, businesses, the public sector, and the community as a whole."" The most ""preliminary"" part of a PDA may be an abbreviated one completed only by the state to determine if the situation merits development of a complete PDA with federal participation. Based on their previous experience, states may determine that the event will not reach the level where a federal disaster declaration is likely. However, despite findings that federal aid may not be needed, there may be political considerations that could lead to a gubernatorial request. As one author points out in his study of the process: Governors also feel the heat of media coverage of incidents in their states, and they too appreciate the importance of exhibiting political responsiveness. Governors also appreciate that their future political fortunes may be influenced by how they handle their disaster and emergency incidents. As a consequence, the hypothesis assumes that governors are the pivotal and decisive players in securing presidential disaster declarations and that they have a tendency to request declarations for even marginal events. While media and political pressure may have some influence on the outcome of some requests, governors may exercise caution since they are reluctant to be turned down when requesting aid. Though it may be possible, from a denial of assistance, to project on to the federal government a callousness or lack of understanding of the situation there are still negative connotations for governors as well. A denial of the request could also be perceived by some to reflect adversely on a governor's decision-making skills and judgment under pressure. Unlike the procedures of the federal process, a governor's decision to request a declaration can be a public and often newsworthy action. Regardless of any question regarding motivation, the governor's or tribal officials' first decision is whether the incident is severe enough to assemble a traditional PDA team to survey the damaged area. The traditional PDA team includes a state official, representatives from the appropriate FEMA regional office, a local official familiar with the area, and, in some instances, representatives from the American Red Cross and/or the Small Business Administration. The FEMA representatives have the responsibility of briefing the team on the factors to be considered, the information that will be helpful in the assessment, and how the information should be reported. One significant improvement in this process is that the regulations now require that the participants reconcile any differences in their findings. FEMA also makes available the template that is used in assessing disaster damage. (See the Appendix of this report.) Another factor is the quality of the PDA team and its findings. PDAs are ordered up quickly after an event. FEMA's 10 regional offices are often engaged in multiple disasters and have to rely on temporary employees (albeit, usually experienced ones) to staff the PDA team. Also, given the variables among regions in interpreting policy and guidance, consistency of approach may also be a question. This became a significant issue during the hurricane season of 2004 in Florida, where questions were raised regarding the designations of some counties. When working openly and with federal and state cooperation, the PDA can be an effective and inclusive process. As former Washington State Emergency Management Director Jim Mullen, and then-FEMA Region X Director Susan Reinertson, explained the process for a survey of flood damage in November of 2006: 'Joint PDA teams will visit and inspect damaged areas, document damage and talk, as needed, with homeowners and local officials,' said Mullen. 'It's a partnership effort designed to provide a clear picture of the extent and locations of damage in counties that have reported the most substantial damage to primary homes and businesses.' 'The PDA teams look at the total scope of damage to establish if recovery is beyond the capabilities and resources of the state and local governments. The PDA doesn't determine the total cost of recovery, nor does it guarantee a presidential declaration for individual assistance,' said FEMA Regional Director Susan Reinertson. PDA teams often face challenges in the collection of data. Some information may be observable in a survey of the area, such as the number of bridges damaged or the number of culverts washed out. But other necessary information, such as the percentage of elderly residents in an area, or the amount of insurance coverage for all homeowners or renters, may be more difficult to obtain quickly. Also, the geographic span of the damage can create complications as the PDA team struggles to cover all of the affected area in a limited time. Further complications may then ensue based on how much of the area that the PDA teams have visited (generally counties but other subdivisions may be used) are included in the governor's or tribal leader's request. Another challenge noted by FEMA is the tendency of some states to suspend the PDA when the state believes they have documented the necessary amount of damage to warrant a declaration. Such a finding may lead to a declaration but also provides an incomplete portrait of the extent of damages and arguably of the types of assistance needed for the response and recovery process. Although PDAs are the usual way damages are assessed, there are exceptions to this rule. Some incidents are so massive in their scale and impact that the actual declaration is not in doubt. This would include events such as Hurricanes Katrina and Sandy, the Loma Prieta and Northridge earthquakes, the Mount St. Helens volcanic eruption, and the September 11 terrorist attacks. In these instances, the decision is not whether a declaration will be made, but how broad the coverage will be, both geographic and programmatic. In such cases the President, in accordance with the regulations, can waive the PDA requirement. But as the regulations note, a PDA may still be needed ""to determine unmet needs for managerial response purposes."" This means the PDA helps to identify a specific, potential need for certain programs, such as crisis counseling or disaster unemployment assistance during the disaster recovery period. It is this identification of discrete need that helps the governor decide on which assistance programs will be requested. The PDA is a ""bottom up"" process as information gradually rises up for decision-makers to consider. Multiple pressure points, including affected citizens, elected officials, and professionals in various fields, may all urge PDA team members to reach certain conclusions. As one author suggests: The president, motivated by the need to appear highly politically responsive, solicits and encourages a gubernatorial request for a presidential disaster declaration. Publicity is a factor in that CNN and other news organizations help to promote nationally what would otherwise be a local incident addressed by subnational authorities. The president may also be influenced by the electoral importance of the state that experiences the incident. It is difficult to overstate the importance of the media context as noted above. Depending on the news of the day, the disaster event in question may be the biggest national story and thus create momentum for action that is difficult to assuage with explanations of traditional administrative procedures. But regardless of the perceptions of political motivation, or intense media scrutiny, there are actual factors listed in regulations for assessing whether a state should receive a major disaster declaration. Public Assistance (PA) refers to various categories of assistance to state and local governments and non-profit organizations. Principally, PA covers the repairs or replacement of infrastructure (roads, bridges, public buildings, etc.) but also includes debris removal and emergency protective measures which may cover additional costs for local public safety groups incurred by their actions in responding to the disaster. In assessing the degree of PA damage, FEMA considers six general areas: Estimated cost of the assistance; Localized impacts; Insurance coverage; Hazard mitigation; Recent multiple disasters; and Programs of other federal assistance. Although all of these factors are considered, the estimated cost of the assistance is a key component and may be ""more equal"" than other factors since it contains a threshold figure. What is especially noteworthy about the cost estimates is that they could be interpreted as an example of the ""arithmetic formula"" that was precluded from use in Section 320 of the Stafford Act. However, that section states that a formula cannot be ""solely"" determinative of the fate of a governor's request. Use of the other factors listed arguably justifies FEMA's consideration of the threshold figure of $1 million in PA damage—the first number FEMA expects to see in a request that includes PA as an area of needed assistance. In addition, FEMA also considers a state-wide threshold of $1.39 per capita in estimated eligible disaster costs before it will approve a request for PA help. Depending on the state's population, the per capita threshold may be difficult to reach. For example, the 2010 Census estimated California's population at just under 38 million people. Applying the $1.39 per capita figure, it would require eligible PA damage in California to be close to $48 million before federal supplemental assistance would be available through a declaration. California is a large state with a budget and tax base commensurate with its size. Expecting a large state to be able to respond on its own is equating such help, and such amounts, to be within ""the capabilities of the state"" That is the prime Stafford Act definition of when federal help is necessary. Compare that level of eligible damage for California ($48 million) with Nevada, a small population state according to FEMA regulations. For Nevada, with a population of about 2.7 million people according to the 2010 Census, eligible PA damage of about $3.5 million would make the state potentially eligible for supplemental federal assistance. There are obvious differences in the populations of these two states; however, both have substantial industries and are growing areas. They are states that border one another and both are subject to the threat of earthquake damage. Different measurements have been suggested to try to capture a state's capacity to respond to disaster events more accurately. Some of these measurements are discussed in the "" Congressional Considerations for the Declaration Process "" section of this report. The next factor used by FEMA to consider a declaration that may include PA help focuses on localized impacts . FEMA generally looks for a minimum of $3.50 per capita in infrastructure damage in a county before designating it for PA funding. While such a per capita amount would likely ensure that the local entity (almost always a county) would be included in the list of jurisdictions designated for PA assistance should a declaration be issued, high local levels of damage per capita would not supersede a finding that damages state-wide fell below the state-wide threshold amount. However, knowledge of a very large localized impact could weigh on the President's discretion and raise the importance of the localized impact factor. This issue has been addressed by recent legislation introduced in the House and Senate in the 113 th Congress. These bills seek to make localized impact ""more equal"" than other factors similar to the position now occupied by state per capita ""Estimated Cost of Assistance."" The legislation suggests assigning a percentage weight to each factor considered. While six other factors in the proposed legislation receive 10% consideration, the ""Localized Impact"" factor is worth 40% when determining whether a disaster declaration for Public Assistance is warranted. This would be particularly helpful to local communities in large states where it is difficult to meet the ""estimated cost"" threshold. By shifting the greater consideration to localized damage amounts, those areas could potentially bolster a state or tribal request. Similarly, other legislation ( H.R. 1859 ) has been introduced that would direct FEMA to consider all factors as equal to the cost-estimate information. This legislation would also direct FEMA to develop regulations which would not consider the state threshold amount when a disaster event occurs within a smaller jurisdiction with significant per capita damage. Reflecting this interest in localized impacts, the report accompanying the House Appropriations Committee legislation for DHS for FY2015 notes: Although FEMA may consider the localized impacts of a disaster when recommending a disaster declaration to the President, the Committee is aware of concerns that, in practice, FEMA primarily relies on the state-wide damage threshold, which will be higher for more populous states even if the local impacts of a disaster may be relatively severe. To address these concerns, the Committee directs FEMA to review its disaster declaration recommendation process, including a review of how to more deliberately incorporate into the process the ''localized impacts'' factor outlined under Title 44, Part 206.48 of the Code of Federal Regulations. Insurance coverage also is considered in assessing damage. Officials preparing PA estimates deduct the amount of insurance that should have been held by units of governments and non-profit organizations from the total eligible damage amount. However, this is a complicated assessment with several caveats. A considerable number of states and local governments ""self-insure"" their investments against some types of disasters and may argue that they would have total liability absent a federal disaster declaration. Also, in the event of some disasters (earthquakes being a prime example), the state insurance commissioner must certify that hazard insurance is both available and affordable. If it is not available, deducting an amount of coverage not realistically available would not be a practical consideration. In the case of a flood event, it is much simpler for FEMA to access information available on whether flood insurance was available, given that FEMA administers the National Flood Insurance Program (NFIP) and there are program staff in each FEMA region that monitor NFIP participation. This knowledge of flood insurance availability and costs makes it a simpler process for FEMA to deduct the amount of flood insurance that should have been in place from the total potential award for a public structure. Hazard mitigation presents a challenging and different type of consideration for Public Assistance disaster declaration requests. If the requesting state can prove that their per capita amount of infrastructure damage falls short due to mitigation measures that lessened the disaster's impact, FEMA will consider that favorably in its recommendation to the President. Calculations of savings would be dependent on cost-benefit analysis and other related estimates of damages that were avoided. This factor is intended to encourage mitigation projects by states to lessen the risks of future natural disasters. Some might consider this practice to be one where ""a good deed should go unpunished."" However, another factor to be considered is that the mitigation work that is credited to the state may have, in fact, been principally financed (up to 75% of the costs) with previous FEMA disaster assistance funding through the Hazard Mitigation Grant Program (HMGP) or through the Pre-Disaster Mitigation (PDM) program. Recent multiple disasters is the factor FEMA considers when a state has been repeatedly hit by disaster events (either presidential declarations or events within the state that were not declared) within the previous 12 months. FEMA evaluates the amount of funds that the state has committed to these recent events and their impact on the state and its residents. For example, a request from a state that has responded on its own to a series of tornadoes may receive a more favorable consideration, even if the catalyst for the request was arguably not as destructive as others. This factor was used in FEMA's assessment of the multiple hurricanes that struck Florida during the 2004 hurricane season. (The frequency of such events is discussed in the "" Presidential, Gubernatorial, and Tribal Discretion "" section of this report.) When FEMA is reviewing a governor's request it is also considering whether other federal programs are available. One example might be if a large amount of the reported damage occurred to federal-aid-system roads. The Federal Highway Administration (FHWA) is a more appropriate agency to handle such an event, and administers programs that address this specific type of damage. The bridge collapse in Minnesota in August of 2007 was a dramatic example of this type of event that would warrant significant, non-FEMA, federal aid. Similarly, other federal programs may be more responsive to certain types of natural events and the problems they create. For example, oceanic bacteria could cause harmful failures for the fishing and hatcheries industry. Should such outbreaks occur, the Magnuson-Stevens Fisheries Act ( P.L. 94-265 ) authorizes programs under the Commerce Department that would have more appropriate forms of emergency assistance for commercial fishermen than FEMA through the Stafford Act. Also, while drought is a type of disaster that could result in a major disaster, such catastrophes usually result in program assistance from the U.S. Department of Agriculture rather than presidential declarations. In summary, all of these factors are used by FEMA to determine whether a major disaster declaration will be recommended and whether PA aid will be extended as a part of that potential declaration. The assistance to repair public infrastructure is based on the amount of eligible damage caused by the disaster event. Unlike aid to households, there is no cap, and the sums can be in the billions of dollars. The restraint on PA spending is that all repairs or rebuilding projects must be due to damage caused by the particular disaster event. Additionally, the state, tribe, or local government must be able to pay its 25% share of the costs. Individual Assistance (IA) includes various forms of help for families and individuals following a disaster event. The assistance authorized by the Stafford Act can include housing assistance, disaster unemployment assistance, crisis counseling, and other programs intended to address the needs of people. In seeking to assess the impact of a disaster on families and individuals, the factors FEMA considers include: Concentration of damages; Trauma; Special populations; Voluntary agency assistance; Insurance coverage; and Average amount of Individual Assistance by state. The SRIA included specific instructions to FEMA to update the factors considered for Individual Assistance. One significant argument for manda ting such a review of I A factors is that these factors have not been adjusted since they first appeared in regulation in 1999. FEMA is to undertake this review in cooperation with representatives of state, tribal, and local emergency management agencies. The intent of the section is to speed up the declaration process through this review. As of this date, FEMA has noted that it expects to begin the rulemaking process, regarding IA factors, during 2014. Concentration of damages looks at the density of the damage in individual communities. FEMA's regulations state that highly concentrated damages ""generally indicate a greater need for federal assistance than widespread and scattered damages throughout a state."" Concentrated damages are far more visible and may be an indication of significant damage to infrastructure supporting neighborhoods and communities, thereby increasing the needs of individuals and families. However, the dispersion of damage is not necessarily an indication that individual and family needs are non-existent. Damage in rural states, almost by definition, is far less concentrated and could arguably be more difficult for a PDA team to view and assess. Congress has sought to address this challenge through the creation of the Rural and Small State advocate position at FEMA. Another consideration is that given the legislation that has attempted to give more weight to ""Localized Impacts"" under Public Assistance, this factor may take on increased importance. Trauma is defined in three ways in FEMA's regulations: the loss of life and injuries, the disruption of normal community functions, and emergency needs that could include an extended loss of power or water. Despite their prominence and importance to victims, families and communities, the loss of life and injuries have relatively little bearing on a declaration decision, but they would greatly influence media coverage that can influence the decision-making process. An extreme amount of losses would be traumatic and considered in the evaluation of the governor's request. But the actual help available from FEMA in response to such losses is limited. The Other Needs Assistance (ONA) program, a part of the Individuals and Households Program (IHP), may provide assistance for uninsured funeral expenses and medical help. As noted, the extreme loss of life or many injuries will likely influence the amount of media coverage for the event. As previously explained in the "" Presidential, Gubernatorial, and Tribal Discretion "" section of this report, the media coverage can influence not merely the pace of the decision, but the actual decision itself. The other areas (disruption of functions and loss of utilities) in the trauma rubric can be a point of dispute in declaration decisions. What constitutes a disruption of normal community functions? Do road closures that result in the closing of schools equate to a disruption? Another consideration is how long the disruption remains and how, or even if, federal help can alleviate the disruption. Similarly, the emergency needs due to the loss of utilities are defined by the length of time the power or water are not in service. Because characteristics of these factors are not defined in regulations, discretionary judgments are significant aspects of the evaluation of IA needs. As noted previously, the Sandy Recovery Improvement Act directed FEMA to update its IA factors. That provision, Section 1109, directed FEMA to give special attention to the second factor, Trauma, when considering the ""severity, magnitude, and impact of a disaster."" This gives added significance to this factor and to FEMA's treatment of it when updating the IA factors. FEMA's report on the status of the update is that it ""is drafting regulatory text for a Notice of Proposed Rulemaking with anticipated publication no earlier than 2014."" Special populations are considered by FEMA in assessing a request for Individual Assistance. FEMA attempts to ascertain information about the demographics of an area affected by a disaster event. Those demographics include the age and income of residents, the amount of home ownership in an area, the effect on Native American tribal groups, and other related considerations to be taken into account. The knowledge of the demographics within the affected area gives FEMA added information to consider regarding trauma and community disruption. Special populations are a factor in the consideration of a governor or tribal leader's request, but the total number of households affected that would be eligible for Stafford Act programs remains the prime consideration. Voluntary agency assistance involves an evaluation of what the volunteer and charitable groups and state, tribal, and local governments have already done to assist disaster victims as well as the potential help they can offer in the recovery period. FEMA also considers whether state, tribal, or local programs ""can meet the needs of disaster victims."" This factor is among the most contentious in the disaster declaration process due to the subjectivity of the assessment. FEMA's evaluation of local and state capabilities, and the capabilities of the local voluntary community, may vary greatly among catastrophes. There is an expectation that the FEMA regional office's relationship and history with the state or tribe could provide some of this information. But a cursory look at state programs available to ""meet the needs of disaster victims"" suggests that few resources are comparable to federal help in intent or in scope. A National Emergency Management Association (NEMA) survey of its members for state-funded disaster assistance showed that relatively few states provide assistance beyond that authorized in the Stafford Act. Table 1 summarizes data from that survey. Since 2010 five fewer states have a PA program in place but one additional state provides a form of IA assistance. NEMA noted that the ""other"" category can include varied forms of state contingency funds and authorities. The small numbers of programs directed at IA suggests that FEMA officials evaluate this area carefully given the lack of information regarding available resources for these programs and the extent of their coverage. In the same vein, attempts to assess the capacity of local voluntary and charitable groups to handle ""unmet needs"" caused by a disaster can be challenging and problematic. Part of the challenge is discerning the assistance available from the non-profit, voluntary sector, and if that aid meets the needs created by the disaster event. A problematic aspect of the assessment is similar to the ""good deeds"" concept addressed in the ""hazard mitigation"" factor in PA. In that instance, the criteria reward the mitigation work that communities and states or tribes had undertaken to lessen the impact of a disaster. Similarly, a strong and efficient charitable sector at the local level that is equipped and funded to address the remaining needs could result in a disaster not being declared and federal supplemental funding not being made available. Arguably, a community does not base all of its preparedness decisions on the potential of FEMA funding in an extraordinary situation. However, it has been argued that some aspects of the FEMA declaration process could be viewed as disincentives for a sound, local capacity to deliver such assistance. One analyst believed that this problem underlines the need for clear criteria for smaller disaster events: Too low a threshold reinforces the perception that the federal government will always come like the cavalry to rescue states and local governments from their improvident failure to prepare for routine disasters. Lapses in preparedness, response, recovery, and mitigation (to cite the disaster management litany) should not be encouraged by a too readily available bailout by the federal government and taxpayers. In evaluating the capabilities of local organizations, FEMA seeks to determine the help that actually exists, rather than assistance that might be expected to be in place. As noted earlier in the PA section, insurance coverage is also an important consideration when FEMA considers a request for Individual Assistance. This is in part derived from the general prohibition in the statute of the duplication of benefits, as follows: ... each federal agency administering any program providing financial assistance to persons, business concerns, or other entities suffering losses as a result of a major disaster or emergency, shall assure that no such person, business concern or other entity will receive such assistance with respect to any part of such loss as to which he has received financial assistance under any other program or from insurance or any other source. This provision does not necessarily result in delayed assistance. FEMA is able to provide help to individuals and households that have disaster damages but are waiting on insurance or other assistance for help. Those applicants can receive FEMA help as long as they agree to reimburse FEMA when they receive their other assistance. If a disaster occurred where almost all of the damaged dwellings were fully insured for the damage that was sustained, FEMA could conclude that a disaster declaration by the President was not necessary. Among the types of disasters FEMA frequently responds to, tornado disasters particularly reflect this challenge since tornado coverage is a part of most homeowners insurance policies. Since the NFIP is administered by FEMA, officials can quickly determine the status of flood insurance in communities and the number of policies in place in the affected area. Additionally, knowledge of the income of the area's residents, as suggested in the special populations factor, allows the agency to make some projections regarding the likelihood of insurance coverage, particularly special hazard insurance such as flood or earthquake insurance, which are potentially expensive additions to a homeowners policy. As one analyst has noted: The good news is that most individuals are very likely insured against many natural disasters already just by owning a homeowners insurance policy. The bad news is that if the home is located in a flood prone area or in an area of the country where earthquakes are relatively common, then purchasing insurance against these disasters is necessary. The last factor FEMA considers in assessing IA needs is the average amount of Individual Assistance by state. FEMA has issued statistics on average losses but notes that the average numbers used are not a threshold (see Table 2 ). The agency does suggest that the ""following averages may prove useful to states and voluntary agencies as they develop plans and programs to meet the needs of disaster victims."" The inference is that the levels listed generally are what would be expected in damage to dwellings. It is based on the age of these averages that SRIA directed FEMA to update the factors. The average numbers that follow are based on disasters that occurred between July of 1995 and July of 1999; the data are 10 years old and of questionable use today. The table divides states into three categories: small states (under 2 million in population), medium states (2 to 10 million in population) and large states (over 10 million in population). The population amounts are based on the 1990 Census. Although FEMA's regulations stress that these are not thresholds, they are considered by agency officials in determining whether IA will be provided. Presumably states may consider that FEMA help could be forthcoming if damage reaches the state indicator levels. However, since the amounts have not been updated in fifteen years and are based on 1990 census data, it is difficult to determine the degree to which these numbers are considered. Given Congress's mandate in Section 320 of the Stafford Act, this cannot be an arithmetic formula that solely determines whether assistance is provided. But the presentation of loss indicators may guide states when considering whether to request assistance. In addition to the issue of the data's currency, a larger and more compelling question is whether the numbers in the chart match up to the Preliminary Damage Assessments (PDAs) for those events. Absent an existing review of detailed information in PDA forms, it is not possible to determine the usefulness of the data in Table 2 . Still, with the level of experience in this field following literally thousands of disaster declarations over the last 30 years, it could be argued that the numbers of eligible households assisted may reflect the estimated damage upon which the decision for a disaster declaration was made. While Congress reviews the mandated GAO reports, the instructions in the SRIA legislation and other commentary on the declaration process, there are some considerations that Members may wish to review when assessing the current declaration process. One area of consideration is the composition of Preliminary Damage Assessment teams. Team members are involved throughout the process and include local officials guiding the team, state, or tribal personnel who assist the governor or tribal leader in requesting assistance, and FEMA staff who work on the disaster, if one is declared. While FEMA staff have the opportunity at several levels to refine the information the team gathers on damages and to ask additional questions, the process could be approached in other ways. Some FEMA staff have suggested the formation of several permanent teams that would have PDAs as their prime job task without continuing involvement in particular disasters. This could result in more consistent assessments with the bonus of added perspective of team members with exposure to various disasters in many regions of the country. The PDA is an important part of the declaration process. While it can be subject to challenge, it is also the assessment closest to the event. Given its vital role in the process the PDA deserves close attention to determine if these on-site assessments are accurately reflecting the character of an event and the likely eligible damages following a disaster event. As previously noted, the averages that appear in FEMA's declaration process regulations for Individual Assistance (IA) to states are derived from experiences from July 1995 to July 1999. Based on the post-Hurricane Sandy legislation (SRIA), FEMA was instructed to update IA factors so it is likely that these figures will be updated based on FEMA's more recent experience in delivering this type of assistance. While the IA averages are separated by state population size, there does not appear to be a threshold number equivalent to the PA figure of $1 million in eligible damage. In the case of IA help, a dollar figure may not be desirable; however, numbers of families and households affected, or a minimum number of homes with major damage, could potentially be a starting point in establishing a base IA threshold for consideration of requests. The current per capita indicator based on state population according to the U.S. Census is clear, but some observers believe it lacks precision. For example, the earlier discussion on PA indicators pointed out the commonality between California and Nevada regarding earthquake risk as well as the growth of the states. Their population sizes are very different but the per capita indicator alone does not necessarily measure a state's fiscal capacity. The GAO report in 2001 noted that per capita personal income measures do not take into account the taxable income a state may enjoy from businesses or corporations that may have considerable taxable profits. GAO did suggest a different indicator: We have previously reported that Total Taxable Resources (TTR), a measure developed by the U.S. Department of Treasury, is a better measure of state funding capacity in that it provides a more comprehensive measure of the resources that are potentially subject to state taxation. FEMA's response to this suggestion questioned whether the use of TTR would be in violation of the legislative prohibition against arithmetic formulas. The TTR does have very specific information and also tracks growth within a state. However, this appears to make it a more accurate measurement. The degree of detail in the measurement would not necessarily make it the ""sole"" determinant of disaster aid. It could remain an indicator and one among several factors to be considered in the declaration process. The disaster declaration process, though subject to inquiry, argument, hearings, studies, and recommendations, has changed very little over time. It remains a process that can be observed and evaluated as it occurs in the area affected by the disaster, and grows opaque as it moves up through layers of FEMA and DHS management to the White House. By making PDA information available, FEMA has begun to lift the veil on the decisions that are made. Congress has demonstrated an interest in this process and has sought to understand its limits and its effectiveness. ""From the Government Accountability Office in 1981 to Vice President Gore's National Performance Review in 1994,"" one student of the process noted, ""countless policy critiques have called for more objective criteria for presidential disaster declarations."" But those calls can be muted when a disaster occurs in a particular place that has particular importance to actors in the process, whether in Congress or the executive branch. While criteria have been established to create a relatively uniform and knowable process, these criteria may not be determinative of the most critical elements considered. An emphasis on victims of unexpected natural disaster events will likely always have a compelling influence on the disaster declaration process. But since disaster relief does have a political element, at many levels, precedent arguably can have value in improving the declaration process so that it can be applied broadly and fairly. But precedent can also be problematic when discussing events of very different size and impact. During the last Congress, attention was directed to the nature of the disaster declaration process. The 113 th Congress has seen legislation introduced that has focused on local impacts over state capacity. In considering such legislation, Congress may choose to engage a broad review of the process that might include the consistency of FEMA's approach across the nation in making damage assessments, other potential indicators of state capabilities and capacities, and the currency of the factors it employs to evaluate those assessments of disaster damage and the state requests on which they are based. Preliminary Damage Assessment Report (All of the PDA Information comes from FEMA's Preliminary Damage Assessment Report to Congress, 2013) ////////// - ///Incident Type/// FEMA-////-DR Declared Month //, 20// On //////////, Governor (first name, middle initial if applicable, last name/Tribal Executive Title) requested a major disaster declaration due to /////// during the period of ///(incident date) or beginning on (incident date), and continuing///. The Governor/Tribal Executive Title requested a declaration for ///(programs) for ///(number) counties and ////Hazard Mitigation for the entire State of ///(or as it states in the Memo/ Tribe name ). During the period of /// (date of PDA)/////, joint federal, state ( delete for Tribe ), and local government (or tribal) Preliminary Damage Assessments (PDAs) were conducted in the requested counties/areas ( for tribe ) and are summarized below. PDAs estimate damages immediately after an event and are considered, along with several other factors, in determining whether a disaster is of such severity and magnitude that effective response is beyond the capabilities of the state (tribe) and the affected local governments, and that Federal assistance is necessary. On //////////////////, President Obama declared that a major disaster exists in the State of /////// (for the Tribe name ). This declaration made ///Individual Assistance if granted//// requested by the Governor available to affected individuals and households in //////////// Counties/Areas. This declaration also made / //Public Assistance if granted//// requested by the Governor/Tribal Executive available to state/the Tribe name and eligible local governments/ associated lands and certain private nonprofit organizations on a cost-sharing basis for emergency work and the repair or replacement of facilities damaged by the //incident type// in ///////////////// Counties. //// if granted// Direct Federal assistance was also authorized./// Finally, this declaration (or if HM and one other) // This declaration also // made Hazard Mitigation Grant Program //// if granted//// assistance requested by the Governor/Tribal Executive available for hazard mitigation measures ///statewide or list specific counties//(for the Tribe name ). Summary of Damage Assessment Information Used in Determining Whether to Declare a Major Disaster Individual Assistance - (Not requested) *delete if requested Total Number of Residences Impacted: ///// Destroyed - /// Major Damage - ///// Minor Damage -//////// Affected -/////// Percentage of insured residences: (///%) Percentage of low income households: (///%) Percentage of elderly households: (///%) Total Individual Assistance cost estimate:$////////////////////// Public Assistance - (Not requested) *delete if requested Primary Impact:///List Primary Infrastructure Impact/// Total Public Assistance cost estimate:$/////////////////// Statewide per capita impact: $///////// (Delete statewide title for tribe) Statewide per capita impact indicator: $1.39 (Delete statewide title for tribe) Countywide per capita impact://///// County ($//////) //////// County ($//////) //////// County ($//////) //////// County ($//////)(Delete for tribe) Countywide per capita impact indicator: $3.50(Delete for tribe)","The Robert T. Stafford Disaster Relief and Emergency Assistance Act (referred to as the Stafford Act—42 U.S.C. 5721 et seq.) authorizes the President to issue ""major disaster"" or ""emergency"" declarations before or after catastrophes occur. Emergency declarations trigger aid that protects property, public health, and safety and lessens or averts the threat of an incident becoming a catastrophic event. Given their purpose, the emergency declarations may precede an event. A major disaster declaration is generally issued after catastrophes occur, and constitutes broader authority for federal agencies to provide supplemental assistance to help state and local governments, families and individuals, and certain nonprofit organizations recover from the incident. The end result of a presidential disaster declaration is well known, if not entirely understood. Various forms of assistance are provided, including aid to families and individuals for uninsured needs; and assistance to state and local governments, and to certain non-profits for rebuilding or replacing damaged infrastructure. Over the last quarter century, the amount of federal assistance provided through presidential disaster declarations has exceeded $150 billion. Often, in recent years, Congress has enacted supplemental appropriations legislation to cover unanticipated costs. While the amounts spent by the federal government on different programs may be reported, and the progress of the recovery can be observed, much less is known about the process that initiates all of this activity. Yet, it is a process that has resulted in an average of more than one disaster declaration a week over the last decade. The disaster declaration procedure is foremost a process that preserves the discretion of the governor or tribal leader to request assistance and the President to decide to grant, or not to grant, supplemental help. The process employs some measurable criteria for evaluating disaster damage in two broad areas: Individual Assistance that aids families and individuals and Public Assistance that is mainly for emergency work such as debris removal and permanent repairs to infrastructure. The criteria, however, also consider many other factors, in each category of assistance, that help decision makers assess the impact of an event on communities and states. Under current law while a governor or a tribal leader may make a request, the decision to issue a declaration rests solely with the President. Congress has no formal role, but has taken actions to adjust the terms of the process. For example, the Post-Katrina Emergency Management Reform Act of 2006, P.L. 109-295, established an advocate to help small states with the declaration process. More recently, Congress passed the Hurricane Sandy Recovery Improvement Act, P.L. 113-2, which had two potentially major impacts on the declaration process. First, the act authorized Native American tribal groups to directly request disaster assistance from the President rather than only requesting through a state governor. The second potential major impact in the act was that FEMA was directed to update its criteria for considering whether to make a recommendation to the President for Individual Assistance declarations. Since the decision for a declaration is at the discretion of the President, there has been some speculation regarding the influence of political favor in these decisions. Some have posited various connections between the political party of the governor requesting or the prominence of some state's congressional delegation on committee's important to FEMA. While of interest, those theories are usually not connected to, or at least fail to consider, the natural events that were the impetus for both the request and the decision. Given the importance of the decision, and the size of the overall spending involved, hearings have been held to review the declaration process so as to ensure fairness and equity in the process and its results. Congress continues to examine the process and several pieces of legislation have been introduced during the 113th Congress to adjust the factors considered for a major disaster declaration. This report discusses the evolution of this process, how it is administered and recent changes enacted in law as well as amending legislation that has been introduced. This report will be updated as warranted by events."
"The European Union (EU) is a unique political and economic partnership that currently consists of 28 member states (see the map in the Appendix ). Built through a series of binding treaties, the Union is the latest stage in a process of integration begun after World War II to promote peace and economic recovery in Europe. Its founders hoped that by creating specified areas in which member states agreed to share sovereignty—initially in coal and steel production, trade, and nuclear energy—it would promote interdependence and make another war in Europe unthinkable. Since the 1950s, this European integration project has expanded to encompass other economic sectors; a customs union; a single market in which capital, goods, services, and people move freely (known as the ""four freedoms""); a common trade policy; a common agricultural policy; many aspects of social and environmental policy; and a common currency (the euro) that is used by 19 member states. Since the mid-1990s, EU members have also taken steps toward political integration, with decisions to develop a Common Foreign and Security Policy (CFSP) and efforts to promote cooperation in the area of Justice and Home Affairs (JHA). Twenty-two EU members participate in the Schengen area of free movement, which allows individuals to travel without passport checks among most European countries. The EU is generally considered a cornerstone of European stability and prosperity, but the union faces a number of internal and external challenges. Perhaps most notable is ""Brexit""—the United Kingdom's (UK's) looming exit from the EU following the June 2016 public referendum in which British voters favored leaving the bloc by 52% to 48%. The UK remains a full member of the EU until it completes withdrawal negotiations and formally exits the bloc (which is widely expected to occur in March 2019). Although Brexit may have political, economic, and institutional implications for the EU, this report largely addresses the EU and its institutions as they currently exist. For more information on the range of issues confronting the EU, including Brexit and concerns such as terrorism and migration, see CRS Report R44249, The European Union: Current Challenges and Future Prospects . EU member states work together through common institutions (see next question) to set policy and promote their collective interests. Decisionmaking processes and the role of the EU institutions vary depending on the subject under consideration. On a multitude of economic and social policies (previously termed Pillar One, or the European Community), EU members have essentially pooled their sovereignty and EU institutions hold executive authority. Integration in these fields—including trade and agriculture—has traditionally been the most developed and far-reaching. EU decisions in such areas often have a supranational quality because most are subject to a complex majority voting system among the member states and are legally binding. For issues falling under the Common Foreign and Security Policy (once known as Pillar Two), member states have agreed to cooperate, but most decisionmaking is intergovernmental and requires the unanimous agreement of all EU countries. Any one national government can veto a decision. For many years, unanimity was also largely the rule for policymaking in the Justice and Home Affairs area (formerly Pillar Three). However, the 2009 Lisbon Treaty extended the EU's majority voting system to most JHA issues, thus giving EU institutions a greater role in JHA policymaking (see "" What Is the Lisbon Treaty? ""). The EU is governed by several institutions. They do not correspond exactly to the traditional branches of government or division of power in representative democracies. Rather, they embody the EU's dual supranational and intergovernmental character: The European Council acts as the strategic guide for EU policy. It is composed of the Heads of State or Government of the EU's member states and the President of the European Commission; it meets several times a year in what are often termed ""EU summits."" The European Council is headed by a President, appointed by the member states to organize the Council's work and facilitate consensus. The European Commission is essentially the EU's executive and upholds the common interest of the EU as a whole. It implements and manages EU decisions and common policies, ensures that the provisions of the EU's treaties are carried out properly, and has the sole right of legislative initiative in most policy areas. It is composed of one Commissioner from each EU country, who is appointed by agreement among the member states to five-year terms and approved by the European Parliament. One Commissioner serves as Commission President; the others hold distinct portfolios (e.g., agriculture, energy, trade). On many issues, the Commission handles negotiations with outside countries. The Council of the European Union (also called the Council of Ministers ) represents the national governments. The Council enacts legislation, usually based on proposals put forward by the Commission, and agreed to (in most cases) by the European Parliament. Different ministers from each country participate in Council meetings depending on the subject under consideration (e.g., foreign ministers would meet to discuss the Middle East, agriculture ministers to discuss farm subsidies). Most decisions are subject to a complex majority voting system, but some areas—such as foreign and defense policy, taxation, or accepting new members—require unanimity. The Presidency of the Council rotates among the member states, changing every six months; the country holding the Presidency helps set agenda priorities and organizes most of the work of the Council. The European Parliament represents the citizens of the EU. It currently has 751 members who are directly elected for five-year terms (the most recent elections were in May 2014; the next elections are due in May 2019). Each EU country has a number of seats roughly proportional to the size of its population. Although the Parliament cannot initiate legislation, it shares legislative power with the Council of Ministers in many policy areas, giving it the right to accept, amend, or reject the majority of proposed EU legislation in a process known as the ""ordinary legislative procedure"" or ""co-decision."" The Parliament also decides on the allocation of the EU's budget jointly with the Council. Members of the European Parliament (MEPs) caucus according to political affiliation, rather than nationality; there are eight political groups and a number of non-attached MEPs. Other institutions also play key roles. The Court of Justice interprets EU laws and its rulings are binding; a Court of Auditors monitors financial management; the European Central Bank manages the euro and EU monetary policy; and advisory committees represent economic, social, and regional interests. On December 1, 2009, the EU's latest institutional reform endeavor—the Lisbon Treaty—came into force following its ratification by all of the EU's then-27 member states. It is the final product of an effort begun in 2002 to reform the EU's governing institutions and decisionmaking processes. It amends, rather than replaces, the EU's two core treaties—the Treaty on European Union (TEU) and the Treaty on the Functioning of the EU (TFEU). Changes introduced by the Lisbon Treaty seek to enable the EU to function more effectively; enhance the EU's role as a foreign policy actor; and increase democracy and transparency within the EU. To help accomplish these goals, the Lisbon Treaty established two new leadership positions: The President of the European Council, a single individual who chairs the meetings of the EU Heads of State or Government, serves as coordinator and spokesman for their work, seeks to ensure policy continuity, and strives to forge consensus among the member states. A dual-hatted position of High Representative of the Union for Foreign Affairs and Security Policy to serve essentially as the EU's chief diplomat. The High Representative is both an agent of the Council of Ministers—and thus speaks for the member states on foreign policy issues—as well as a Vice President of the European Commission, responsible for managing most of the Commission's diplomatic activities and foreign assistance programs. Other key measures in the Lisbon Treaty included the following: Simplifying the EU's qualified majority voting system and expanding its use to policy areas previously subject to member state unanimity in the Council of Ministers. This change was intended in part to speed EU decisionmaking, but member states still tend to seek consensus as much as possible. Increasing the relative power of the European Parliament by strengthening its role in the EU's budgetary process and extending the use of the ""co-decision"" procedure to more policy areas, including agriculture and home affairs issues. As such, the treaty gives the European Parliament a say equal to that of the member states in the Council of Ministers over the vast majority of EU legislation (with some exceptions, such as most aspects of foreign and defense policy). For the first time in the EU's history, the Lisbon Treaty also introduced an ""exit clause""—Article 50 of the TEU—which outlines procedures for a member state to leave the EU. A member state that decides to leave would invoke Article 50 by notifying the European Council of its intentions, which would trigger a two-year period for withdrawal negotiations to be concluded; the EU may also decide to extend the time for negotiations. The UK government invoked Article 50 in March 2017, giving effect to its June 2016 vote to leave the EU. Nineteen of the EU's current 28 member states use a common single currency, the euro, and are often collectively referred to as ""the eurozone."" The gradual introduction of the euro began in January 1999 when 11 EU member states became the first to adopt it and banks and many businesses started using the euro as a unit of account. Euro notes and coins replaced national currencies in participating states in January 2002. Eurozone participants share a common central bank—the European Central Bank (ECB)—and a common monetary policy. However, they do not have a common fiscal policy, and member states retain control over decisions about national spending and taxation, subject to certain conditions designed to maintain budgetary discipline. In 2009-2010, a serious crisis in the eurozone developed. It began in Greece due to the country's high sovereign (or public) debt load. Over the previous decade, the Greek government had borrowed heavily from international capital markets to pay for its budget and trade deficits. This left Greece vulnerable to shifts in investor confidence. As investors became increasingly nervous during 2009 about the government's debt level amid the global financial crisis, markets demanded higher interest rates for Greek bonds, which drove up Greece's borrowing costs. By early 2010, Greece risked defaulting on its public debt. Market concerns quickly spread to several other eurozone countries with high, potentially unsustainable levels of public debt, including Ireland, Portugal, Italy, and Spain (the latter two being the eurozone's third- and fourth-largest economies, respectively). The debt problems of these countries also posed a risk to the European banking system, slowed economic growth, and led to rising unemployment in many eurozone countries. European leaders and EU institutions responded to the crisis and sought to stem its contagion with a variety of policy mechanisms. In order to avoid default, Greece, Ireland, Portugal, and Cyprus received ""bail-out"" loans from the EU and the International Monetary Fund (IMF). Such assistance, however, came with some strings attached, including the imposition of strict austerity measures. Spain also enacted significant austerity measures, and eurozone leaders approved a recapitalization plan for Spanish banks. Other key initiatives included the creation of a permanent EU financial assistance facility (the European Stability Mechanism, or ESM) to provide emergency support to eurozone countries in financial trouble; a decision to create a single bank supervisor for the eurozone, under which the ESM would be able to inject cash directly into ailing banks; and ECB efforts to calm the financial markets by purchasing large portions of European sovereign debt and providing significant infusions of credit into the European banking system. The eurozone crisis began to abate in late 2012 as market confidence became more positive, and the situation started to stabilize in most eurozone countries. Ireland exited the EU-IMF financial assistance program in December 2013, Portugal did so in May 2014, and Cyprus in March 2016. EU aid to Spanish banks ceased in January 2014. Nevertheless, many member states continued to experience weak economic growth and high unemployment; Greece's economy and banking system remained in particular distress. In the first half of 2015, prospects grew that Greece might exit the eurozone (dubbed ""Grexit"") as the Greek government—led by the leftist, anti-austerity Syriza party—sought further financial aid from its eurozone creditors but also demanded debt relief and an easing of austerity. For months, negotiations foundered. While France and Italy emphasized the political importance of the eurozone, Germany and others (including the Netherlands, Finland, Slovakia, and Slovenia) stressed that all members, including Greece, must adhere to eurozone fiscal rules. In late June, Greece failed to make a payment to the IMF, and the government closed the banks and imposed capital controls. In mid-July, however, the Syriza-led government acceded to EU demands for more austerity and economic reforms in exchange for the badly needed financial assistance. Although Grexit was averted, the threat of Grexit has lingered, as have tensions between Athens, its eurozone creditors, and the IMF over the terms of Greece's assistance program and the question of debt relief. The IMF and some analysts argued that more must be done to put Greece on a realistic path to financial viability, but key EU members such as Germany were hesitant to discuss debt relief. In June 2018, Greece's creditors agreed to a degree of debt relief in the form of extending loan maturities due from 2023 by 10 years to ease Greece's repayment burden. On August 20, 2018, Greece officially exited its financial assistance plan; however, it must continue to meet stringent financial conditions and will remain subject to financial monitoring by the EU and the IMF. Despite the end of Greece's financial assistance program and some recent signs of economic recovery, experts assess that Greece's economy remains fragile, austerity measures remain in place, and concerns persist about the strength of the country's banking system. Between 2010 and 2018, Greece received a total of $330 billion in loans from the EU, the ECB, and the IMF. From its start, the eurozone crisis forced EU leaders to grapple with weaknesses in the eurozone's structure and the common currency's future viability. It also generated tensions among member states over the proper balance between imposing austerity measures and stimulating growth and over whether greater EU fiscal integration was necessary. The fraught negotiations with Greece in 2015 significantly challenged the EU as an institution but EU governments and leaders appear to remain committed to the euro and the broader EU project. Some experts contend that the eurozone's recent economic recovery and more positive economic prospects in 2018 are due, in part, to EU efforts over the last several years to strengthen the eurozone's architecture and improve fiscal discipline among member states. The EU views the enlargement process as an extraordinary opportunity to promote stability and prosperity in Europe. Since 2004, EU membership has grown from 15 to 28 countries, bringing in most states of Central and Eastern Europe. The EU began as the European Coal and Steel Community in 1952 with six members (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands). In 1973, Denmark, Ireland, and the United Kingdom joined what had then become the European Community. Greece joined in 1981, followed by Spain and Portugal in 1986. In 1995, Austria, Finland, and Sweden acceded to the present-day European Union. In 2004, the EU welcomed eight former communist countries—the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia—plus Cyprus and Malta as members. Bulgaria and Romania joined in 2007. Croatia became the EU's newest member on July 1, 2013. To be eligible for EU membership, countries must first meet a set of established criteria, including having a functioning democracy and market economy. Once a country becomes an official candidate, accession negotiations are a long and complex process in which the applicant must adopt and implement a massive body of EU laws and regulations. Analysts contend that the carefully managed process of enlargement is one of the EU's most powerful policy tools and that, over the years, it has helped to transform many European countries into more democratic and affluent societies. At the same time, EU enlargement is also very much a political process. Most significant steps on the path to accession require the unanimous agreement of the EU's existing member states. Thus, a prospective candidate's relationships or conflicts with individual members also may influence a country's accession prospects and timeline. Five countries are currently recognized by the EU as official candidates for membership with active accession bids: Albania, Macedonia, Montenegro, Serbia, and Turkey. These countries are all at different stages of the accession process, and it will likely be many years before any of them is ready to join the EU. Bosnia-Herzegovina and Kosovo are regarded as potential future candidates for EU membership (see the Appendix ). The EU maintains that the enlargement door remains open to any European country that fulfills the EU's political and economic criteria for membership. In May 2018, EU leaders at a summit with their Western Balkans counterparts reaffirmed the EU's ""unequivocal support for the European perspective"" of the countries of the Western Balkans. Nevertheless, some European officials and many EU citizens are cautious about additional EU expansion, especially to Turkey or countries farther east, such as Georgia or Ukraine, in the longer term. Worries about continued EU enlargement range from fears of unwanted migrant labor to the implications of an ever-expanding union on the EU's institutions, finances, and overall identity. Such qualms are particularly apparent with respect to Turkey, given Turkey's large size, predominantly Muslim culture, and relatively less prosperous economy. Some experts suggest that Brexit also could dampen prospects for further EU enlargement, in part because the UK had long been one of the staunchest supporters within the EU of continued expansion, including to Turkey. The EU has a Common Foreign and Security Policy (CFSP), in which member states adopt common policies, undertake joint actions, and pursue coordinated strategies in areas in which they can reach consensus. CFSP was established in 1993; the eruption of hostilities in the Balkans in the early 1990s and the EU's limited tools for responding to the crisis convinced EU leaders that the Union had to improve its ability to act collectively in the foreign policy realm. Previous EU attempts to further such political integration had foundered for decades on member state concerns about protecting national sovereignty and different foreign policy prerogatives. CFSP decisionmaking is dominated by the member states and requires unanimous agreement of all national governments. Member states must also ensure that national policies are in line with agreed EU strategies and positions (e.g., imposing sanctions on a country). However, CFSP does not preclude individual member states pursuing their own national foreign policies or conducting their own national diplomacy. CFSP remains a work in progress. Although many view the EU as having made considerable strides in forging common policies on a range of international issues, from the Balkans to the Middle East peace process to Iran, others argue that the credibility of CFSP too often suffers from an inability to reach consensus. The launch of the U.S.-led war in Iraq in 2003, for example, was extremely divisive among EU members, and they were unable to agree on a common EU position. Others note that some differences in viewpoint are inevitable among a multitude of countries that still retain different approaches, cultures, histories, and relationships—and often different national interests—when it comes to foreign policy. The EU's Lisbon Treaty seeks to bolster CFSP by increasing the EU's visibility on the world stage and making the EU a more coherent foreign policy actor. As noted above, the treaty established a High Representative of the Union for Foreign Affairs and Security Policy to serve essentially as the EU's chief diplomat. This post combines into one position the former responsibilities of the Council of Ministers' High Representative for CFSP and the Commissioner for External Relations, who previously managed the European Commission's diplomatic activities and foreign aid programs. In doing so, the High Representative position aims to marry the EU's collective political influence with the Commission's economic weight and development tools. The Lisbon Treaty also created a new EU diplomatic corps (the European External Action Service) to support the High Representative. Since 1999, with political impetus initially from the UK and France, the EU has been working to develop a Common Security and Defense Policy (CSDP), formerly known as the European Security and Defense Policy (ESDP). CSDP seeks to improve the EU's ability to respond to security crises and to enhance European military capabilities. The EU has created three defense decisionmaking bodies and has developed a rapid reaction force and multinational ""battlegroups."" Such EU forces are not a standing ""EU army"" but rather a catalogue of troops and assets at appropriate readiness levels that may be drawn from existing national forces for EU operations. CSDP operations focus largely on tasks such as peacekeeping, crisis management, and humanitarian assistance. Many CSDP missions to date have been civilian, rather than military, in nature, with objectives such as police and judicial training (""rule of law"") or security sector reform. The EU is or has been engaged in CSDP missions in regions ranging from the Balkans and the Caucasus to Africa and the Middle East. However, improving European military capabilities has been difficult, especially given many years of flat or declining European defense budgets. Serious capability gaps exist in strategic air- and sealift, command and control systems, intelligence, and other force multipliers. Also, a relatively low percentage of European forces are deployable for expeditionary operations. Some analysts have suggested pooling assets among several member states and the development of national niche capabilities as possible ways to help remedy European military shortfalls. In 2004, the EU established the European Defense Agency to help coordinate defense-industrial and procurement policy in an effort to stretch European defense funds farther. Recently, many EU officials and national leaders have supported increased defense spending and advocated for further EU defense integration. Such calls have been driven by both the new security challenges facing Europe, including a resurgent Russia, and a desire to bolster the EU project in the wake of the UK vote to leave the bloc. Some analysts contend that Brexit could make closer EU defense cooperation more likely because the UK traditionally opposed certain measures—such as an EU military headquarters—that it viewed as infringing too much on national sovereignty or the primacy of NATO as the main guarantor of European security. Commentators also suggest that European concerns about the Trump Administration's commitment to NATO and transatlantic security could provide additional impetus to greater EU defense integration in the years ahead. Since 2016, EU leaders have announced several new initiatives to bolster EU security and defense cooperation, including a European Defense Fund to support joint defense research and development activities. EU leaders insist that such efforts do not represent the first steps toward an EU army and that member states will retain full control over national military assets and over defense procurement and investment decisions. In December 2017, 25 member states launched a new EU defense pact (known officially as Permanent Structured Cooperation, or PESCO) aimed at spending defense funds more efficiently, jointly developing military capabilities, and increasing military interoperability. The EU also has identified a more robust partnership with NATO as a key pillar of its strategy to improve European defense capabilities and EU security cooperation (see next question). Although some observers are encouraged by these recent measures, they note that the EU and national governments will continue to face decisionmaking and procurement challenges that could limit PESCO's effectiveness. Since its inception, the EU has asserted that CSDP is intended to allow the EU to make decisions and conduct military operations ""where NATO as a whole is not engaged,"" and that CSDP is not aimed at usurping NATO's collective defense role. The United States has supported EU efforts to develop CSDP, provided that it remains tied to NATO and does not rival or duplicate NATO structures or resources. Advocates of CSDP argue that more robust EU military capabilities will also benefit NATO given that 22 countries currently belong to both organizations. The Berlin Plus arrangement—which was finalized in 2003 and allows EU-led military missions access to NATO planning capabilities and common assets—was designed to help ensure close NATO-EU links and prevent a wasteful duplication of European defense resources. Two Berlin Plus missions have been conducted in the Balkans, and NATO and the EU have sought to coordinate their activities on the ground in operations in Afghanistan and various hot spots in Africa. At the same time, NATO-EU relations have been somewhat strained for years. More extensive NATO-EU cooperation at the political level on a range of issues—from countering terrorism or weapons proliferation to improving coordination of crisis management planning and defense policies—has been stymied largely by EU tensions with Turkey (in NATO but not the EU) and the ongoing dispute over the divided island of Cyprus (in the EU but not NATO). Bureaucratic rivalry and varying views on both sides of the Atlantic regarding the future roles of NATO and the EU's CSDP also have contributed to frictions between the two organizations. The emergence of new security threats in Europe, however, has prompted some recent progress toward enhanced NATO-EU cooperation. In 2016, NATO and the EU concluded two new arrangements—one on countering migrant smuggling in the Aegean Sea and another on cyber defense—and issued a joint declaration to ""give new impetus and new substance"" to their strategic partnership. Among other measures outlined, NATO and the EU agreed to boost their common ability to counter hybrid threats, expand operational cooperation on migration (especially in the Mediterranean), and further strengthen coordination on cybersecurity and cyber defense. In July 2018, NATO leaders reaffirmed the importance of the NATO-EU partnership and both organizations pledged to improve military mobility in Europe. Despite the apparent momentum toward closer NATO-EU relations, some analysts worry that political uncertainty on both sides of the Atlantic and ongoing tensions with Turkey could derail these efforts. Some U.S. experts remain concerned that a minority of EU member states (traditionally led by France) would like to build an EU defense arm more independent from NATO in the longer term. These experts note that the EU's new global security strategy, released in June 2016, reaffirmed the EU's ambition to be able to act ""autonomously"" (although it also stressed the need for continued cooperation with NATO and the United States). Given that the UK has long been key to ensuring that any EU defense efforts remained closely tied to NATO, some U.S. analysts worry that Brexit could embolden the EU to develop a more autonomous EU defense identity. U.S. officials have voiced support for the EU's new defense pact, PESCO, but assert that it must not distract European allies from their NATO commitments. The Justice and Home Affairs (JHA) field seeks to foster common internal security measures while protecting the fundamental rights of EU citizens and promoting the free movement of persons within the EU. JHA encompasses police and judicial cooperation, migration and asylum policies, fighting terrorism and other cross-border crimes, and combating racism and xenophobia. JHA also includes border control policies and rules for the Schengen area of free movement. For many years, EU efforts to harmonize policies in the JHA field were hampered by member states' concerns that such measures could infringe on their legal systems and national sovereignty. The 2001 terrorist attacks on the United States and subsequent attacks in Europe in the 2000s galvanized progress in the JHA area. Among other measures, the EU has established a common definition of terrorism, an EU-wide arrest warrant, and enhanced tools to stem terrorist financing. The EU also has worked to bolster Europol, its joint agency for police cooperation. Recent terrorist attacks in France, Belgium, Germany, Spain, the United Kingdom, and elsewhere have led the EU to devote significant attention to combating the so-called foreign fighter phenomenon and individuals inspired by terrorist groups such as the Islamic State. The EU's Lisbon Treaty gave the European Parliament ""co-decision"" power over the majority of JHA policy areas. The Treaty also made most decisions on JHA issues in the Council of Ministers subject to the qualified majority voting system, rather than unanimity, in a bid to speed EU decisionmaking. In practice, however, member states largely continue to strive for consensus on sensitive JHA policies. Moreover, for some issues in the JHA area, the EU added an ""emergency brake"" that allows any member state to halt a measure it believes could threaten its national legal system and ultimately, to opt out of it. Despite these safeguards, the UK and Ireland negotiated the right to choose those JHA policies they want to take part in and to opt out of all others; Denmark extended its previous opt-out in some JHA areas to all JHA issues. The Lisbon Treaty technically renamed JHA as the ""Area of Freedom, Security, and Justice."" The Schengen area of free movement encompasses 22 EU member states plus four non-EU countries. Within the Schengen area, internal border controls have been eliminated, and individuals may travel without passport checks among participating countries. In effect, Schengen participants share a common external border where immigration checks for individuals entering or leaving the Schengen area are carried out. The Schengen area is founded upon the Schengen Agreement of 1985 (Schengen is the town in Luxembourg where the agreement was signed, originally by five countries). In 1999, the Schengen Agreement was incorporated into EU law. The Schengen Borders Code comprises a detailed set of rules governing both external and internal border controls in the Schengen area, including common rules on visas, asylum requests, and border checks. Provisions also exist that allow participating countries to reintroduce internal border controls for a limited period of time in cases of a serious security threat or exceptional circumstances, such as a conference of world leaders or a major international sporting event. Along with the abolition of internal borders, Schengen participants agreed to strengthen cooperation between their police and judicial authorities in order to safeguard internal security and fight organized crime. As part of these efforts, they established the Schengen Information System (SIS), a large-scale information database that enables police, border guards, and other law enforcement and judicial authorities to enter and consult alerts on certain categories of persons and objects. Such categories include persons wanted for arrest, missing persons (including children), criminal suspects, individuals who do not have the right to enter or stay in Schengen territory, stolen vehicles and property, lost or forged identity documents, and firearms. Four EU countries (Bulgaria, Croatia, Cyprus, and Romania) are not yet full Schengen members, but are legally obliged to join once they meet the required security conditions. Ireland and the UK have opt-outs from the Schengen free movement area but take part in some aspects of the Schengen Agreement related to police and judicial cooperation, including access to the SIS. The EU has a common external trade policy, which means that trade policy is an exclusive competence of the EU and no member state can negotiate its own international trade agreement. The EU's trade policy is one of its most well-developed and integrated policies. It evolved along with the common market—which provides for the free movement of goods within the EU—to prevent one member state from importing foreign goods at cheaper prices due to lower tariffs and then re-exporting the items to another member with higher tariffs. The scope of the common trade policy has been extended partially to include trade in services, the defense of intellectual property rights, and foreign direct investment. The European Commission and the Council of Ministers work together to set the common customs tariff, guide export policy, and decide on any trade protection or retaliation measures. EU rules allow the Council to make trade decisions with qualified majority voting, but in practice the Council tends to employ consensus. The European Commission negotiates trade agreements with outside countries and trading blocs on behalf of the Union as a whole. Both the Council of Ministers and the European Parliament must approve all such trade agreements before they can enter into force. The process for negotiating and concluding a new international trade agreement begins with discussions among all three EU institutions and a Commission impact assessment. Provided there is a general agreement to proceed, the Commission initiates an informal scoping exercise with the potential partner country or trade bloc. Following this dialogue, the Commission then formulates what are known as ""negotiating directives"" (sometimes termed the ""negotiating mandate""), which sets out the Commission's overall objectives for the future agreement. The ""directives"" are submitted to the Council for its approval, and shared with the European Parliament. Provided the Council approves the ""negotiating directives,"" the Commission then launches formal negotiations for the new trade agreement on behalf of the EU. Within the Commission, the department that handles EU trade policy—the Directorate General for Trade (DG Trade)—leads the negotiations. Typically, there are a series of negotiation rounds. The duration of the negotiations varies but can range from two to three years or longer. During the course of negotiations, the Commission is expected to keep both the Council and the Parliament apprised of its progress. When negotiations reach the final stage, both parties to the agreement initial the proposed accord. It is then submitted to the Council and the Parliament for review. If the Council approves the accord, it authorizes the Commission to formally sign the agreement. Once the new trade accord is officially signed by both parties, the Council submits it to the Parliament for its consent. Although the Parliament is limited to voting ""yes"" or ""no"" to the new accord, it can ask the Commission to review or address any concerns. If parts of the trade agreement fall under member state competence, all EU countries must also ratify the agreement according to their national ratification procedures. After Parliament gives its consent and following ratification in the member states (if required), the Council adopts the final decision to conclude the agreement. It may then be officially published and enter into force. EU member states have long believed that the Union magnifies their political and economic clout (i.e., the whole is greater than the sum of its parts). Nevertheless, tensions have always existed within the EU between those members that seek an ""ever closer union"" through greater integration and those that prefer to keep the Union on a more intergovernmental footing in order to better guard their national sovereignty. As a result, some member states over the years have ""opted out"" of certain aspects of integration, including the eurozone and the Schengen area. Another classic divide in the EU falls along big versus small state lines; small members are often cautious of initiatives that they fear could allow larger countries to dominate EU decisionmaking. In addition, different histories and geography may influence member states' policy preferences. The EU's enlargement to the east has brought in many members with histories of Soviet control, which may color their views on issues ranging from EU reform to relations with Russia to migration; at times, such differences have caused frictions with older EU member states. Meanwhile, southern EU countries that border the Mediterranean may have greater political and economic interests in North Africa than EU members located farther north. The prevailing view among European publics has likewise been historically favorable toward the EU. Many EU citizens value the freedom to easily travel, work, and live in other EU countries. At the same time, there has always been a degree of ""euroskepticism""—or anti-EU sentiments—among some segments of the European public. Traditionally, such euroskepticism has been driven by fears about the loss of national sovereignty or concerns about the EU's ""democratic deficit""—a feeling that ordinary citizens have no say over decisions taken in faraway Brussels. Over the last few years, however, Europe's economic difficulties and worries about immigration and globalization have contributed to growing support for populist, antiestablishment parties throughout Europe. Many of these parties also are considered euroskeptic, although they are not monolithic. Most of these parties are on the far right of the political spectrum, but a few are on the left or far left. Moreover, they hold a range of views on the future of the EU, with some advocating for EU reforms and others calling for an end to the eurozone or even the EU itself. Austria, Denmark, Finland, France, Germany, Greece, Hungary, Italy, the Netherlands, Poland, Sweden, and the UK are among those EU countries with prominent populist and, to at least some extent, euroskeptic parties. Following Italian elections in March 2018, a new coalition government was formed that consists of two anti-establishment, euroskeptic parties. Such parties also lead the government or are part of coalition governments in Austria, Finland, Poland, and Hungary. In Germany, the euroskeptic, anti-immigrant, right-wing Alternative for Germany party secured enough support in federal elections in September 2017 to enter parliament, becoming the first far-right German political party to do so since the end of the Second World War. Such euroskeptic parties are challenging the generally pro-European establishment parties and have put pressure on mainstream leaders to embrace some of their positions on issues such as immigration and further European integration. The UK government's decision to hold the June 2016 public referendum on continued EU membership was driven largely by increasing pressure from hard-line euroskeptics, both within and outside of the governing Conservative Party. Euroskeptic parties also may seek to influence the formation of EU policies. Some analysts suggest that Italy's new euroskeptic government may push back against certain eurozone rules that it views as constraining growth or oppose certain elements of EU trade deals. At the same time, opinion polls indicate that a majority of EU citizens remain supportive of the EU. Some observers note that many of the most stridently anti-EU parties, such as France's former National Front party (recently renamed National Rally) and the Netherlands' Freedom Party, did not do as well as expected in elections in 2017 and are not part of national governments. Although a range of anti-establishment and euroskeptic parties hold up to 25% of seats in the current European Parliament—and may increase their share of seats in the upcoming 2019 elections—such parties have struggled to form a cohesive opposition and thus far have failed to exert significant influence on the EU's legislative process. In a June 2016 public referendum, UK voters favored leaving the EU by 52% to 48%. The UK government enacted the results of this ""Brexit"" referendum in March 2017, when it invoked Article 50—the so-called exit clause —of the Treaty on European Union. The EU is currently engaged in complex negotiations with the UK on its pending withdrawal, which is widely expected to occur in March 2019. In December 2017, the EU and the UK reached an agreement in principle covering main aspects of three priority withdrawal issues (the Irish border, the rights of UK and EU citizens, and the financial settlement), and talks began in March 2018 on the UK's future relationship with the EU. EU-UK negotiations, however, remain contentious. Despite the December 2017 agreement with the EU, the UK remains largely divided on whether it wants a hard or soft Brexit. As such, many details—including on customs arrangements, trade relations, and ensuring no hard border between Northern Ireland and Ireland—still m be fleshed out with the EU. These difficulties have increased speculation of a ""no deal"" scenario in which the UK ""crashes out"" of the EU in March 2019 without settled arrangements in place. Other analysts remain confident that the EU and UK will come to an agreement that avoids a no deal situation because such an outcome would serve neither side's political or economic interests. EU leaders assert that despite Brexit, ""the Union of 27 countries will continue."" However, the UK is the bloc's second-largest economy and, along with Germany and France, long has been viewed as one of the EU's ""big three."" As such, the UK's departure could have significant political and economic implications for the EU and for the future of the EU integration project. Many observers view the EU as taking a tough line in Brexit negotiations—refusing to allow the UK to cherry-pick the benefits of the EU without taking on the required obligations—in part to discourage other member states and euroskeptic publics from contemplating a break with the EU that would further fracture the bloc. Some experts argue that Brexit could call into question additional EU enlargement and reduce the EU's role and influence on the world stage, given that the EU will find itself without the UK's diplomatic, military, and economic clout. In the longer term, various analysts suggest that the EU faces a fundamental choice between those supporting further integration as the solution to the bloc's woes and those contending that integration has gone too far and should be put on hold (or possibly even reversed in certain areas). Although some experts argue that ""more EU"" is necessary to better address political and economic challenges, others are skeptical that national governments will be inclined to cede more authority to a Brussels bureaucracy viewed as opaque and out of touch with the problems of average Europeans. At the same time, some contend that Brexit ultimately could lead to a more like-minded EU, able to pursue deeper integration without UK opposition. Considerable attention has focused recently on developing a ""multispeed EU,"" in which some member states could agree to greater integration in certain areas and others could choose to opt out. In March 2017, the EU-27 leaders met in Rome to commemorate the 60 th anniversary of the Treaties of Rome (two treaties agreed in 1957 that are regarded as key founding blocks of the present-day EU) and to conclude a ""reflection process"" launched in the wake of the UK's Brexit referendum. EU-27 leaders issued the Rome Declaration, in which they reasserted their continued commitment to the EU project. Press reports indicate, however, that efforts led by Germany to mention explicitly developing a multispeed EU were watered down because of concerns from Poland and possibly others that such an arrangement could lead to different classes of EU membership (essentially, one for richer, more prosperous EU countries in the west and another for relatively poorer EU members in the east). Regardless of a formal decision to move toward a multispeed EU, the union appears to be pursuing greater integration in certain areas, especially defense. EU leaders have announced several new initiatives to bolster security and defense cooperation (as discussed in "" Does the EU Have a Defense Policy? ""). Germany and France—which are regarded as key countries in determining the EU's future direction—also have called for strengthening the eurozone's economic governance. In June 2018, Germany and France proposed a road map for eurozone reforms, but other eurozone members subsequently voiced reservations about some aspects of the plan, including a potential common eurozone budget. Discussion and debate within the EU on its future structure and purpose likely will continue to preoccupy EU governments and leaders for the foreseeable future. For decades, the United States and the EU (and its predecessor institutions) have maintained diplomatic and economic ties. The 1990 U.S.-EU Transatlantic Declaration set out principles for greater consultation, and established regular summit and ministerial meetings. In 1995, the New Transatlantic Agenda (NTA) and the EU-U.S. Joint Action Plan provided a framework for promoting stability and democracy together, responding to global challenges, and expanding world trade. The NTA also sought to strengthen individual, people-to-people ties across the Atlantic, and launched a number of dialogues, including ones for business leaders and legislators. The Transatlantic Legislators' Dialogue (TLD) has been the formal mechanism for engagement and exchange between the U.S. House of Representatives and the European Parliament since 1999, although inter-parliamentary exchanges between the two bodies date back to 1972. During U.S.-EU summits, the U.S. President meets with the President of the European Commission and the President of the European Council. The U.S. Secretary of State's most frequent interlocutor in the EU context is the High Representative for the Union's Foreign Affairs and Security Policy. The U.S. Trade Representative's key interlocutor is the European Commissioner for Trade, who directs the EU's common external trade policy. Other U.S. Cabinet-level officials interact with Commission counterparts or member state ministers in the Council of Ministers formation as issues arise. Many working-level relationships between U.S. and EU officials also exist. A delegation in Washington, DC, represents the European Union in its dealings with the U.S. government, while the U.S. Mission to the European Union represents Washington's interests in Brussels. The United States has supported the European integration project since its inception in the 1950s as a way to help keep European nationalism in check, promote political reconciliation (especially between France and Germany), and prevent another catastrophic war on the European continent. Successive U.S. Administrations and many Members of Congress have long viewed European integration as a way to foster democratic allies and strong trading partners in Europe. During the Cold War, the EU project—and the peace and prosperity it helped to engender in Western Europe—was considered central to deterring the Soviet threat. With the end of the Cold War, the United States strongly backed EU efforts to extend the political and economic benefits of membership to Central and Eastern Europe, and it has supported the EU aspirations of Turkey and the Western Balkan states. The United States often looks to the EU for partnership on an extensive range of common foreign policy concerns. Although strategic and tactical differences surface periodically, many analysts assert that the United States and the EU have a strong track record of cooperation. The United States and the EU have promoted peace and stability in various regions and countries (including the Balkans, Afghanistan, and Africa), enhanced law enforcement and counterterrorism cooperation, and sought to tackle cross-border challenges, such as cybersecurity. During the Obama Administration, the two sides worked together to contain Iran's nuclear ambitions and address climate change. Since 2014, the United States and the EU also have imposed sanctions on Russia (including those targeting key sectors of the Russian economy) in response to Russia's annexation of Crimea and its support for separatists in eastern Ukraine. At times, the U.S.-EU political relationship has faced serious challenges. U.S.-EU relations hit a historic low in 2003 over the U.S.-led invasion of Iraq, which some EU members supported and others strongly opposed. U.S.-EU differences on how best to promote a political settlement to the Israeli-Palestinian conflict often have posed a stumbling block. Data protection and balancing privacy and security also have been key U.S.-EU sticking points for years. Frictions on such issues resurfaced following the unauthorized disclosures in 2013 of U.S. surveillance programs and allegations of U.S. intelligence-collection operations in Europe. EU worries about U.S. data privacy safeguards put pressure on U.S.-EU information-sharing arrangements, in both law-enforcement and commercial contexts. The Obama Administration and Congress took several steps to try to assuage European data protection concerns and ensure continued U.S.-EU information sharing. Nevertheless, some in the EU remain apprehensive about whether U.S. laws and regulations sufficiently protect EU citizens' personal data. Despite the ups and downs in U.S.-EU relations over the years, U.S. and EU policymakers alike traditionally have valued the partnership as serving their respective overall strategic and economic interests. Given long-standing U.S. support for the EU, many EU leaders have been taken aback by what they perceive as President Trump's hostility toward the bloc. President Trump has repeatedly singled out the EU's trade practices as harmful to U.S. commercial interests. Several commentators contend that the Trump Administration views the EU through an economic prism and is less inclined to regard the EU as an important political and security partner. President Trump's criticisms of the EU have prompted significant and growing concerns in Europe about the future trajectory of U.S.-EU relations and the broader transatlantic partnership. EU officials and many European governments also are uneasy with elements of the Trump Administration's ""America First"" foreign policy, and U.S.-EU divisions have emerged on a number of issues. The EU is particularly concerned by President Trump's decision to withdraw from the 2015 multilateral nuclear agreement with Iran (the Joint Comprehensive Plan of Action, or JCPOA). The EU believes the JCPOA has been effective in preventing Iran from developing nuclear weapons and contends that the U.S. withdrawal could destabilize the region. Moreover, the EU considers the JCPOA to be a major foreign policy achievement and a high point for U.S.-EU cooperation. As such, many in the EU view the U.S. withdrawal as undermining these accomplishments. The EU also is apprehensive that the reimposition of U.S. sanctions on Iran will threaten EU business interests in Iran. The EU is seeking to work with Iran and other international partners to preserve the JCPOA, in part by trying to insulate European companies engaged in Iran from U.S. secondary sanctions. In addition, many EU leaders were dismayed by President Trump's decisions to withdraw the United States from the Paris climate agreement and to recognize Jerusalem as the capital of Israel (which they view as unhelpful to resolving the Israeli-Palestinian conflict). Some in the EU are distrustful about possible Trump Administration efforts to improve relations with Russia, arguing that any such efforts must not come at the expense of European security and transatlantic coherence. EU policymakers also express concerns about what they regard as the Administration's ambivalence toward multilateral organizations such as the United Nations and the World Trade Organization (WTO). Some European and EU officials increasingly question whether the United States will remain a reliable partner in the years ahead. Various commentators suggest that there is a risk of U.S. disengagement and the EU must be better prepared to address both regional and global challenges on its own. Many observers view recent EU efforts to enhance defense cooperation and to conclude trade agreements with other countries and regions (including Canada, Japan, and Latin America) as aimed not only at boosting the EU project in the wake of Brexit but also at reducing European dependence on the United States. Other experts believe that despite heightened U.S.-EU tensions on certain policy issues, the EU will seek to work with the Trump Administration on common interests—such as countering terrorism and promoting cybersecurity—and will aim to preserve political, security, and economic relations with the United States for the long term. Some observers point to European Commission President Jean-Claude Juncker's recent efforts to reduce trade tensions with President Trump (discussed below) as a clear indication that the EU remains committed to ensuring close U.S.-EU relations for the foreseeable future. The United States and the EU share the largest trade and investment relationship in the world. The combined U.S. and EU economies account for 46% of global gross domestic product, roughly 28% of global exports, and 33% of global imports. The United States and the EU also account for over half of global foreign direct investment. U.S. and European companies are the biggest investors in each other's economies (total stock of two-way direct investment is over $5 trillion), and the United States and Europe are each other's most profitable markets. One recent study estimates that the transatlantic economy generates $5.5 trillion a year in commercial sales (foreign affiliate sales) and employs up to 15 million workers (in direct and indirect employment) on both sides of the Atlantic. U.S.-EU economic relations traditionally have been viewed as mutually beneficial, but some tensions have always existed. Long-standing U.S.-EU trade disputes persist over poultry, bioengineered food products, protection of geographical indications (GIs), and subsidies to airplane manufacturers Boeing and Airbus. Many analysts note that resolving U.S.-EU trade disputes is often difficult because both sides are of roughly equal economic strength and neither has the ability to impose concessions on the other. Another factor may be that disputes involve differences in domestic values, political priorities, and regulatory frameworks. In an effort to stimulate greater economic growth and more job creation on both sides of the Atlantic, the United States and the EU launched negotiations in 2013 on a free trade agreement known as the Transatlantic Trade and Investment Partnership (T-TIP). Goals for T-TIP focused on further increasing market access and exports; strengthening rules-based investment; reducing non-tariff and regulatory barriers; and enhancing cooperation on trade issues of global concern. Many officials and analysts also viewed T-TIP as reaffirming the importance of close transatlantic ties, both politically and economically. Although U.S. and EU officials had hoped to complete the T-TIP negotiations in 2016, this timeline proved overly ambitious given unresolved differences on sensitive issues such as investor-state dispute settlement, digital trade, treatment of GIs, and government procurement, among others. T-TIP negotiations have been inactive under the Trump Administration. Historically, U.S.-EU cooperation has been a driving force behind efforts to liberalize world trade and ensure the stability of international financial markets. Many also view U.S.-EU economic cooperation as crucial to managing emerging economies such as China, India, and Brazil in the years ahead. At the same time, divisions exist both among EU countries and between the EU and the United States in some policy areas. U.S.-EU disagreement over agricultural subsidies, for example, has contributed to the stalemated Doha Round of multilateral trade negotiations. In addition, U.S.-European differences persist regarding how to curb large global trade imbalances viewed as posing serious risks to economic growth and an open international trading system. Many EU officials are anxious about U.S. trade policy under the Trump Administration and the degree to which the United States will continue to play a leading role in supporting the multilateral trading system. The EU is deeply concerned about what it regards as protectionist U.S. trade policies and President Trump's apparent view of EU trade practices as detrimental to the United States. President Trump has repeatedly raised concerns about the U.S. goods deficit with the EU ($153 billion in 2017). In mid-July 2018, President Trump asserted that the EU was a ""foe"" for ""what they do to us in trade,"" although he also noted ""that doesn't mean they are bad … it means that they are competitive."" EU officials contend that despite the goods deficit, U.S.-EU economic relations are largely in balance when the U.S. services surplus with the EU ($51 billion in 2017) and higher profits earned by U.S. companies doing business in Europe are taken into consideration (one study estimates that in 2017, U.S. affiliates in Europe earned about $140 billion more than European affiliates in the United States). A key U.S.-EU sticking point stems from the Trump Administration's March 2018 decision to impose tariffs on imports of steel (25%) and aluminum (10%) from U.S. trading partners, following a Department of Commerce determination that current steel and aluminum imports could pose a threat to U.S. national security (pursuant to Section 232 of the Trade Expansion Act of 1962). The Trump Administration granted the EU two consecutive temporary exemptions to negotiate trade concessions and avoid imposition of tariffs. With no satisfactory agreement reached, however, U.S. tariffs on steel and aluminum imports from the EU went into effect on June 1, 2018. The Trump Administration also has begun Section 232 investigations into whether tariffs are warranted on imported automobiles and parts and uranium ore imports. EU leaders contend that the imposition of U.S. tariffs on national security grounds is baseless and particularly offensive given that most EU countries are close U.S. security partners. The EU response to the U.S. steel and aluminum tariffs has been multifaceted. Among other measures, the EU is challenging the U.S. tariffs through the WTO and has imposed retaliatory tariffs on selected U.S. imports (including, for example, Kentucky bourbon and Harley-Davidson motorcycles). On July 25, 2018, European Commission President Juncker and President Trump reached an initial agreement aimed at de-escalating U.S.-EU tensions on trade and tariffs. The two leaders pledged to renew U.S.-EU economic cooperation and resolve existing trade and tariff differences. In a joint U.S.-EU statement, the two sides asserted they would seek, among other measures, to work towards ""zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods,"" to ""assess existing tariff measures,"" and that neither side would ""go against the spirit of this agreement"" as long as discussions continued. The EU interprets the Trump-Juncker deal to mean that the United States will not impose new tariffs under Section 232 against European automobiles or auto parts while U.S.-EU talks on trade and tariff issues are under way. EU governments and businesses have been particularly concerned about possible U.S. auto-related tariffs given that major European car manufacturers are heavily engaged in the U.S. market. Following his meeting with Juncker, President Trump tweeted that the United States and the EU ""love each other"" and appeared to give a more upbeat assessment of U.S.-EU economic relations. Administration officials and supporters credit President Trump's approach with compelling the EU to address U.S. trade concerns. Some U.S. policymakers welcomed provisions in the joint U.S.-EU statement aimed, in particular, at boosting EU purchases of U.S. soybeans and liquefied natural gas (LNG). Although the Trump-Juncker agreement appears to have decreased U.S.-EU trade tensions to some degree, many in the EU remain cautious about whether the deal will hold. Some U.S.-EU differences have surfaced about the extent of proposed new U.S.-EU trade talks. For example, U.S. officials subsequently asserted that all agricultural products should be part of upcoming trade discussions, but EU officials have dismissed this idea, maintaining that only soybeans were within the scope of talks agreed to by Juncker and Trump. Some analysts also question how much the EU can do to increase imports of U.S. soybeans or LNG given that the EU is not a command economy and does not have the power to make such decisions for private companies.","The European Union (EU) is a political and economic partnership that represents a unique form of cooperation among sovereign countries. The EU is the latest stage in a process of integration begun after World War II, initially by six Western European countries, to foster interdependence and make another war in Europe unthinkable. The EU currently consists of 28 member states, including most of the countries of Central and Eastern Europe, and has helped to promote peace, stability, and economic prosperity throughout the European continent. The EU has been built through a series of binding treaties. Over the years, EU member states have sought to harmonize laws and adopt common policies on an increasing number of economic, social, and political issues. EU member states share a customs union; a single market in which capital, goods, services, and people move freely; a common trade policy; and a common agricultural policy. Nineteen EU member states use a common currency (the euro), and 22 member states participate in the Schengen area of free movement in which internal border controls have been eliminated. In addition, the EU has been developing a Common Foreign and Security Policy (CFSP), which includes a Common Security and Defense Policy (CSDP), and pursuing cooperation in the area of Justice and Home Affairs (JHA) to forge common internal security measures. Member states work together through several EU institutions to set policy and to promote their collective interests. In recent years, however, the EU has faced a number of internal and external crises. Most notably, in a June 2016 public referendum, voters in the United Kingdom (UK) backed leaving the EU. The looming British exit from the EU (dubbed ""Brexit"") comes amid multiple other challenges, including the rise of populist and to some extent anti-EU political parties, concerns about democratic backsliding in some member states (including Poland and Hungary), an influx of refugees and migrants, a heightened terrorism threat, and a resurgent Russia. The United States has supported the European integration project since its inception in the 1950s as a means to prevent another catastrophic conflict on the European continent and foster democratic allies and strong trading partners. Today, the United States and the EU have a dynamic political partnership and share a huge trade and investment relationship. Despite periodic tensions in U.S.-EU relations over the years, U.S. and EU policymakers alike have viewed the partnership as serving both sides' overall strategic and economic interests. EU leaders are anxious about the Trump Administration's commitment to the EU project, the transatlantic partnership, and free trade—especially amid the Administration's imposition of tariffs on EU steel and aluminum products since June 2018. In mid-July 2018, President Trump reportedly called the EU a ""foe"" on trade but subsequently reached an initial agreement with the EU later in the month aimed at de-escalating U.S.-EU tensions over trade and tariffs. Concerns also linger in Brussels about the implications of the Trump Administration's ""America First"" foreign policy and its positions on a range of international issues, including Russia, Iran, the Israeli-Palestinian conflict, climate change, and the role of multilateral institutions. This report serves as a primer on the EU. Despite the UK's vote to leave the EU, the UK remains a full member of the bloc until it completes withdrawal negotiations and officially exits the EU (expected to occur in March 2019). As such, this report largely addresses the EU and its institutions as they currently exist. It also briefly describes U.S.-EU political and economic relations that may be of interest in the 115th Congress. For more information on the EU project in the longer term, see CRS Report R44249, The European Union: Current Challenges and Future Prospects, by [author name scrubbed]."
"Congress appropriates operations and maintenance funds for DOD, in part, for the purchase of spare and repair parts. DOD distributes operations and maintenance funding to major commands and military units. The latter use operations and maintenance funding to buy spare parts from the Department’s central supply system. By the end of fiscal year 2001, DOD reported in its supply system inventory report that it had an inventory of spare parts valued at about $63.3 billion. Prior GAO reports have identified major risks associated with DOD’s ability to manage spare parts inventories and prompted a need for reporting on spare parts spending and the impact of spare parts shortages on military weapon systems’ readiness. In recent years, Congress has provided increased funding for DOD’s spare parts budget to enable military units to purchase spare parts from the supply system as needed. In addition, beginning with fiscal year 1999, Congress provided supplemental funding totaling $1.5 billion, in part, to address spare parts shortages that were adversely affecting readiness. However, in making supplemental appropriations for fiscal year 2001, the Senate Committee on Appropriations voiced concerns about the Department’s inability to articulate funding levels for spare parts needed to support the training and deployment requirements of the armed services and provide any meaningful history of funds spent for spare parts. In June 2001, we reported that DOD lacked the detailed information needed to document how much the military units were spending to purchase new and repaired spare parts from the central supply system. To increase accountability and visibility over spare parts funding, we recommended that DOD provide Congress with detailed reports on its past and planned spending for spare parts. In making the recommendation, we anticipated that such information, when developed through reliable and consistent data collection methods, would help Congress oversee DOD’s progress in addressing spare parts shortages. In response to our recommendation, in June 2001 and February 2002, DOD provided Congress with Exhibit OP-31 reports as an integral part of the fiscal year 2002 and 2003 budget requests for operations and maintenance funding. These reports, which the services had previously submitted to DOD for internal use only, were to summarize the amounts each military service and reserve component planned to spend on spare parts in the future and the actual amount spent the previous fiscal year. Figure 1 shows the Exhibit OP-31 template as it appears in DOD’s Financial Management Regulation. The regulation requires the military services to report the quantity and dollar values of actual and programmed spending for spare parts in total and by specific commodity groups, such as ships, aircraft engines, and combat vehicles and explain any changes from year to year as well as between actual and programmed amounts. (See apps. I through VI for each service’s June 2001 and February 2002 exhibits.) DOD’s June 2001 and February 2002 reports did not provide Congress with an actual and complete picture of spare parts spending. The actual amounts reported as spent by the Army in total on spare parts and by all services for most of the commodities were estimates. The services’ budget offices had computed these estimates using various methods because they do not have a reliable system to account for and track such information.In addition, all the services did not include information on the supplemental operations and maintenance funding they received in their totals, include the quantities of parts purchased, or explain deviations between planned and actual spending as required on the template. These deficiencies limit the potential value of DOD’s reports to Congress and other decision makers. Some of DOD’s purported actual spending data were estimates. All of the Army’s spending amounts and most of the other services’ commodity amounts for prior years were estimates derived from various service methods—not actual obligations to purchase spare parts. The services’ headquarters budget offices provided these estimates because they did not have a process for tracking and accumulating information on actual spending by commodity in their accounting and logistics data systems. The services’ budget offices were to develop the Exhibit OP-31 data using the guidance shown on the template as published in DOD’s Financial Management Regulation. The Department did not provide the services with any other guidance on how to develop information required for Exhibit OP-31 reports. The guidance directed the services to prepare reports showing planned and actual funding and quantities of repairable and consumable spare parts purchases by commodity for multiple fiscal years. Each service employed its own methodology to estimate the amount of money spent for spare parts as described below: The Army used estimates to report its total spending for spare parts and the breakout of spare parts spending for all commodity groups. The Army based its estimates on computer-generated forecasts of the spare parts needed to support the current and planned operations. Information from cost data files, logistics files, and the Operating and Support Management Information System was used to develop a consumption rate for spare parts on the basis of anticipated usage, considering such factors as miles driven and hours flown. The consumption factor was entered in the Army’s Training Resources Model, which contains force structure, planned training events, and the projected operating tempo. The model used the consumption factor to estimate the total cost and quantities of spare parts that would be consumed. The model also provided the estimated spending for each of the commodities cited in the exhibit. The Navy Department used unaudited actual obligation data from the major commands as its basis for reporting total spending for spare parts and for some commodity groups. However, the breakout of actual spending data for the aircraft engine and airframe commodities were estimates. The Navy Department’s headquarters budget office developed its reports on the basis of information contained in price and program change reports submitted by the major commands. The Navy Department’s accounting system tracked obligations and developed pricing information for spare parts purchased under numerous subactivity groupings, some of which were tied to the categories listed on the OP-31 Exhibit. For example, codes have been established to track obligations for consumable and repairable spare parts purchased to support ship operations. The budget office prepared summary schedules accumulating these obligations from each command and transferred this information to the appropriate line of the OP-31 Exhibit. While the system provided accounting codes to summarize spare parts spending to support air operations and air training exercises, separate codes had not been established to distinguish spare parts purchased for aircraft engines and airframes—two separate and distinct commodity groupings on the exhibit. Lacking a separate breakout for aircraft engines and airframes, the budget office estimated the amounts for each commodity from historical trends. The Air Force used unaudited actual obligation data from its accounting system to identify and report its total spending, but its breakout of spending for the commodity groupings used estimates. The Air Force calculated estimates for each commodity by applying budget factors to the total actual obligation data shown in its accounting system. The accounting system provided these data by expense code, which designated depot-level repairables and consumables by “fly” and “non-fly” obligations. The Air Force allocated all “fly” obligations to airframes and left the engine commodity blank, even though some of the obligations were for engines. The Air Force selected this approach because spare parts for airframes and engines are budgeted together. To estimate the amount spent on the missiles, communications equipment, and other miscellaneous commodities, the Air Force allocated the total “non-fly” obligations on the basis of ratios derived from the amounts previously budgeted for these categories. While DOD had no reliable system to account for and track all of the needed information on actual spending, some of the services’ major commands have data that can be compiled for this purpose. Our visits to selected major operating commands for each military service revealed that they maintain automated accounting and logistics support data systems that could be used to provide unaudited data on spare parts funding allocations and actual obligations to purchase repairable and consumable spare parts in significant detail. For example, at the Army’s Training and Doctrine Command, we found that the Integrated Logistics Analysis Program provided information to monitor and track obligation authority by individual stock number and federal supply class. Personnel at that location used these data to develop a sample report documenting spending in the format requested by Exhibit OP-31. The Air Force’s Air Combat Command and the Navy’s Commander in Chief Atlantic Fleet each had systems that also could be used to provide information on spending. We discussed these reporting deficiencies with Office of the Secretary of Defense comptroller officials, who concurred that some figures on the service’s Exhibit OP-31 reports were estimates and that DOD did not have a comprehensive financial management system that would routinely provide actual spending information. They said that estimates are all they have access to, given the absence of a comprehensive financial management system that reports accurate cost-accounting information. Furthermore, they stated that even though detailed information on such spending is available at the major commands, developing better estimates would entail an expensive and potentially difficult reporting requirement that should be considered in deciding whether the current information is acceptable. DOD’s exhibits were also not complete in that they did not show all of the key information required by the template. DOD’s guidance directed the services to report total operations and maintenance spare parts funding, the spare parts quantities bought, and the reasons for deviations between actual and programmed funding. However, two of the services did not provide information on the quantities of spare parts they had purchased, and none of the services explained variances between actual and initially programmed funding. Service officials commented that these reporting omissions were generally due to DOD’s vague data collection guidance on the template and uncertainties about how to comply. The Army was the only service that reported spare parts quantity purchases each fiscal year. However, the Army’s quantities were estimates that were based on applying historical usage rates to such factors as miles driven and hours flown, even when actual quantities were required. The Navy and Air Force did not report quantities because, according to service officials, such information was not readily available to them. Furthermore, they said that DOD’s data collection guidance did not adequately explain how this information was to be developed. None of the services explained changes between actual and programmed spending in the exhibits as required. In comparing the June 2001 and February 2002 exhibits, we noted that each service’s fiscal year 2001 actual spending deviated from the amount programmed and that some differences were significant. For example, in the February 2002 exhibits, the Navy showed an increase for fiscal year 2001 of approximately $400 million, and the Air Force showed a decrease of approximately $93 million in the actual amounts spent for spare parts versus the amount programmed in the June 2001 exhibits. Neither service provided a reason for the change. While DOD guidance requires the services to report total programmed and actual spending amounts, the services do not identify and report pending supplemental funding requests in their programmed spending totals until after the supplemental funds are received. For example, the Navy’s June 2001 exhibit did not include supplemental funding of about $299 million in its reported fiscal year 2001 programmed funding estimate, which totaled approximately $3.5 billion. However, the Navy’s February 2002 exhibit included the additional funding in the actual fiscal year 2001 actual spending totals. Similarly, the Army’s June 2001 exhibit, which reported programmed funding of approximately $2.1 billion for fiscal year 2002, did not include $250 million in supplemental funding for the purchase of additional spare parts to improve readiness. The supplemental funding was later included in the spending estimates reflected on the February 2002 exhibit. Service officials commented that these reporting omissions were generally due to uncertainties about requirements for reporting changes to spare parts spending estimates that result from supplemental funding. Weaknesses in DOD’s accounting and reporting practices hinder the usefulness of the data to decision makers. Providing actual data on spare parts spending is important to Congress and decision makers because, when linked to factors such as spare parts shortages and readiness, it can help serve as a baseline for evaluating the impact of funding decisions. Because the reports have not cited actual spending and have not been complete, they do not provide Congress with reasonable assurance about the amount of funds being spent on spares. As a result, they have less value to Congress and other decision makers in the Department during their annual deliberations about (1) how best to allocate future operations and maintenance resources to reduce spare parts shortages and improve military readiness and (2) when to make future resource allocation decisions about modernizing the force. Given the importance of spare parts to maintaining force readiness, and as justification for future budget requests, actual and complete information would be important to DOD as well as Congress. Therefore, we recommend that the Secretary of Defense issue additional guidance on how the services are to identify, compile, and report on actual and complete spare parts spending information, including supplemental funding, in total and by commodity, as specified by Exhibit OP-31 and direct the Secretaries of the military departments to comply with Exhibit OP-31 reporting guidance to ensure that complete information is provided to Congress on the quantities of spare parts purchased and explanations of deviations between programmed and actual spending. In written comments on a draft of this report, DOD partially concurred with both recommendations. DOD’s written comments are reprinted in their entirety in appendix VII. DOD expressed concern that the first recommendation focused only on improving the reporting of operations and maintenance appropriations spending for spare parts but did not address other appropriations used for these purposes or working capital fund purchases. DOD stated that in order to have a comprehensive picture of spare parts spending, information on spare parts purchased with working capital funds and other investment accounts needs to be reported. The Department offered to work with Congress to facilitate this kind of analysis. As our report makes clear, we focused our analysis on the information the Department reported—operations and maintenance funding—and our recommendation was directed at improving the accuracy of the information. We continue to believe it is important that the Congress receive accurate actual spending data for these appropriations. Furthermore, as we point out in the report, operations and maintenance funding is the principal source of funds used by the military services to purchase new or repaired spare parts from the working capital funds, and as such, is a key indicator of the priority being placed on spares needs. Lastly, our report recognizes that there are other sources of funds for spare parts purchases, and we support DOD’s statement that it will work with Congress to provide more comprehensive reporting on actual and programmed spending from all sources. In partially concurring with the second recommendation, the Department agreed that the services need to explain deviations between programmed and actual spending but believed that reporting spare parts quantities purchased as required by the financial management regulation does not add significant value to the information being provided to Congress because of the wide range in the unit costs for parts. While we recognize that the costs of parts vary significantly, continuing to include such information by commodity provides some basis for identifying parts procurement trends over time and provides valuable information about why shortages may exist for certain parts. Therefore, we continue to believe that our recommendation is appropriate. To determine the accuracy, completeness, and consistency of the oversight reports to Congress on spare parts spending for the active forces under the operations and maintenance appropriation, we obtained copies of and analyzed data reflected on OP-31 exhibits submitted by the Departments of the Army, Navy, and Air Force for the June 2001 and February 2002 budget submissions. We compared data and narrative explanations on the reports with reporting guidelines and templates contained in the DOD Financial Management Regulation. We analyzed and documented the data collection and reporting processes followed by each of the military departments through interviews with officials and reviews of available documentation at DOD’s Office of the Comptroller and budget offices within the Departments of the Army, Navy, and the Air Force. To determine the availability of alternative systems for tracking and documenting information on actual obligations for spare parts purchases, we visited selected major commands in each of the military departments. These major commands included the Army’s Training and Doctrine Command; the Navy’s Commander in Chief, Atlantic Fleet; and the Air Force’s Air Combat Command. However, we did not attempt to validate the commands’ detailed funding data. We also reviewed our prior reports outlining expectations for enhanced oversight reporting on the use of spare funds and high-risk operations within the Department of Defense. We performed our review from February through August 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to John P. Murtha, the Ranking Minority Member of the Subcommittee on Defense, House Committee on Appropriations; other interested congressional committees; the Secretary of Defense; Secretaries of the Army, Air Force, and Navy; and the Director, Office of Management and Budget. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me on (202) 512-8412 if you or your staff have any questions concerning this report. Staff acknowledgments are listed in appendix VIII. Key contributors to this report were Richard Payne, Glenn Knoepfle, Alfonso Garcia, George Morse, Gina Ruidera, Connie Sawyer, George Surosky, Kenneth Patton, and Nancy Benco.","GAO was asked by the Department of Defense (DOD) to identify ways to improve DOD's availability of high-quality spare parts for aircraft, ships, vehicles, and weapons systems. DOD's recent reports do not provide an accurate and complete picture of spare parts funding as required by financial management regulation. As a result, the reports do not provide Congress with reasonable assurance about the amount of funds being spent on spare parts. Furthermore, the reports are of limited use to Congress as it makes decisions on how best to spend resources to reduce spare parts shortages and improve military readiness."
"In 1988, Congress enacted the Military Whistleblower Protection Act to provide protection to servicemembers who report wrongdoing within DOD. According to DOD policy, a military whistleblower is a servicemember who makes, prepares to make, or is perceived as making or preparing to make a protected communication—that is, a report of a violation of law or regulation, gross waste of funds, or abuse of authority, among others, to an authorized individual or organization. An authorized individual includes, among others, a Member of Congress, an IG, and any person or organization in the servicemember’s chain of command. Further, any lawful communication to a Member of Congress or IG is Reprisal occurs when a responsible management official protected.takes, threatens to take, withholds, or threatens to withhold a personnel action because a servicemember made or was preparing to make a protected communication. A personnel action is any action taken on a servicemember that affects or has the potential to affect a servicemember’s current position or career, such as an adverse performance evaluation, letter of reprimand, or separation from service, among others. Servicemembers and former servicemembers may submit reprisal complaints to DODIG or an IG within DOD. In 2013, Congress expanded the time for servicemembers to file a reprisal complaint from 60 days to 1 year following the date on which the servicemember becomes aware of the personnel action. While the law affords military whistleblowers certain protections, those who allege they have suffered reprisal generally do not receive relief from the alleged reprisal until DOD has completed an investigation and substantiated the claims of reprisal. DODIG can conduct an investigation into a military reprisal complaint or refer the investigation to the appropriate service IG; however, according to DOD policy, no determination is complete without final approval from DODIG. Whistleblower Reprisal Investigations is the directorate within DODIG’s Administrative Investigations component that is responsible for conducting and overseeing investigations of reprisal and restriction complaints filed by servicemembers. According to DOD policy, the Whistleblower Reprisal Investigations directorate is to approve service IG recommendations to dismiss cases, review and approve the results of investigations conducted by the service IGs, and initiate follow-up investigations to correct any inadequacies in service IG investigations. The majority of DODIG’s investigation workload for military reprisal cases is related to oversight reviews of investigations conducted by the service IGs. The directorate is also responsible for investigating reprisal complaints filed by DOD civilian employees, and employees of DOD contractors and subcontractors, among others. According to DODIG’s semiannual reports to Congress, military whistleblower reprisal complaints account for approximately 60 percent of the reprisal complaints it receives. Figure 1 provides a summary of the investigation process, as described in DODIG guidance. According to DODIG’s Guide to Investigating Military Whistleblower Reprisal and Restriction Complaints, DODIG and service IG investigators are to assess reprisal complaints by answering four questions to determine whether the elements of reprisal are present. Specifically: 1. Did the servicemember make or prepare to make a protected communication, or was the servicemember perceived as having made or prepared to make a protected communication? 2. Was an unfavorable personnel action taken or threatened against the servicemember, or was a favorable personnel action withheld or threatened to be withheld, following the protected communication? 3. Did the responsible management official have knowledge of the servicemember’s protected communication or perceive the servicemember as making or preparing to make a protected communication? 4. Would the same personnel action have been taken, withheld, or threatened absent the protected communication? During the complaint intake process, the investigator is to review the complaint and timeline and conduct an interview with the servicemember to determine whether (1) the servicemember made or prepared to make a protected communication and (2) a responsible management official took a personnel action against the servicemember. The investigator is to also assess whether the allegation supports an inference that the responsible management official had knowledge of the protected communication and suggests a causal connection between the protected communication and the personnel action, such as whether the personnel action closely followed the protected communication. If the investigating officer determines there was no protected communication, no personnel action, or no inference of responsible management official knowledge or causation, the investigating officer can recommend that DODIG dismiss the case. If a servicemember’s complaint contains a personnel action and a protected communication, and an inference of knowledge and causation, the case is to proceed to a full investigation, according to DODIG guidance.official would have taken the personnel action if the servicemember had not made a protected communication, the investigating officer is to determine the official’s reasons for taking the action, the timing between the protected communication and the personnel action, the official’s motive, and whether the servicemember was treated differently than other servicemembers who did not make protected communications. The investigating officer is to determine the case outcome based on a “preponderance of the evidence,” defined by DODIG as the degree of relevant evidence that a reasonable person, considering the record as a whole, would accept as sufficient to find that a contested fact is more likely to be true than untrue. When determining whether the responsible management According to DODIG guidance, if the investigating officer finds: (1) that the servicemember made a protected communication, and that the responsible management official (2) took a personnel action against the servicemember following the protected communication, (3) had knowledge of the protected communication, and (4) would not have taken the personnel action without the protected communication, the investigator writes a report that substantiates the reprisal complaint. After the investigator completes the report, it is subject to DODIG supervisory and managerial review and approval, as well as a legal sufficiency review. If the investigation is conducted by a service IG investigator, the service IG headquarters reviews and forwards the report to DODIG for oversight and final approval. In cases where DODIG substantiates a reprisal complaint, the servicemember may take an additional step to petition the appropriate Board for the Correction of Military Records for relief from the personnel action. DOD did not meet statutory notification requirements to inform servicemembers about delays in investigations for about half of military whistleblower reprisal investigations in fiscal year 2013. Further, in the notifications that DOD sent, reasons about the delays were general in nature and projected report completion dates were, on average, significantly underestimated. In addition, DOD rarely met internal timeliness requirements for completing military whistleblower reprisal investigations within 180 days for cases that it did not dismiss at intake. The average length of an investigation during fiscal years 2013 and 2014 was almost three times the DOD requirement. According to 10 U.S.C. § 1034 if, during the course of the investigation, the IG determines that it is not possible to submit the report of investigation to the Secretary of Defense and the service Secretary within 180 days after the receipt of the allegation, the IG shall provide to the Secretary of Defense, the service Secretary concerned, and the servicemember making the allegation a notice of that determination including the reasons why the report may not be submitted within that time and an estimate of the time when the report will be submitted. DODIG considers its office to be in accordance with the statute as long as it either completes the investigation within 180 days or submits a letter to the servicemember within 180 days, according to a senior DODIG official. In February 2012, we found that DODIG officials acknowledged that they and the service IGs had not been making the required notifications, but that they were taking steps to ensure that they met statutory notification requirements. For example, in February 2012, DODIG issued policy guidance to the service IGs reemphasizing the statutory requirement to notify servicemembers if investigations are not completed within 180 days.are to determine whether the service IG sent the 180-day notification letter as part of DODIG’s oversight review of service IG-investigated Further, according to oversight investigators we spoke with, they cases and in fiscal year 2013, it was included as an item on DODIG’s oversight worksheet for oversight investigators to look for during their oversight review. DODIG officials stated that they have taken additional action to ensure they meet statutory notification requirements since fiscal year 2013, which was the time frame covered by our case-file review. Specifically, in fall 2013, DODIG assigned an oversight investigator to periodically reconcile 180-day notification letters with the service IGs to ensure that the service IGs have sent the required letters and that DODIG has received a copy, according to DODIG officials. In addition, DODIG developed a mechanism in its case management system to indicate which cases are older than 180 days. However, DOD officials told us they have not developed a tool, such as an automated alert, to proactively ensure that they are in compliance with the statutory 180-day notification requirement. On the basis of our file review of a stratified random sample of 124 cases closed by DODIG in fiscal year 2013, we found that DOD has made improvements related to these reporting requirements and that some case files that required letters contained evidence that DOD had sent the letters. However, we estimate that about 47 percent of the files for cases that DOD took longer than 180 days to close in fiscal year 2013 did not contain evidence that the investigating IG sent the required letters to servicemembers. In addition, we found that in cases in which DODIG or the service IG sent the required letter, it typically did so after the case had reached the 180-day mark. Based on our file review, we estimate that for cases in which DODIG or the service IG sent a 180-day notification letter to the servicemember to explain the delays in the investigation, the median notification time was about 353 days after the servicemember filed the complaint. In some service investigations, the investigating IG did not send the required letter to the servicemember until it forwarded the report of investigation to DODIG for review, more than 1 year after the servicemember filed the complaint. Further, the letters that DOD sent provided general reasons for the delay, but, on average, significantly underestimated the date by which it would complete the investigation. For example, reasons for the investigation delay included case complexity, case volume, and delays that the service IG experienced in coordinating information, witnesses, and testimony. Based on the results of our file review, we estimate that the median time for case completion stated by DODIG and the service IGs in the letters, which they sent, on average, around 353 days into the investigation, was However, we estimate that for cases in about an additional 78 days.which the investigating IG sent the required letter, the median time for case closure was actually 488 days, 57 days past the stated estimate for case completion. Service IG officials stated that, for most cases over 180 days, they provide a standard estimate for case completion because it is difficult to estimate the amount of time required for case completion due to the unique characteristics of each case and the number of layers of review prior to case closure. According to federal standards for internal control, an agency must have relevant, reliable, and timely communications relating to internal and external events in order to determine whether the agency is achieving its compliance with various laws and regulations. On the basis of our file review, we estimate that, on average, the notifications present in 53 percent of investigations closed in fiscal year 2013 in which they were required were untimely and contained unreliable estimates. Figure 2 shows the median notification timeframes and estimates for case completion for fiscal year 2013 cases over 180 days. GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). DOD rarely met internal timeliness requirements for completing military whistleblower reprisal investigations in fiscal years 2013 and 2014. According to DOD Directive 7050.06, which implements the statute 10 U.S.C. § 1034 and establishes DOD policy, DODIG shall issue a whistleblower reprisal investigation report—containing a thorough review of the facts and circumstances, relevant documents acquired, and summaries or transcripts of interviews conducted—within 180 days of the receipt of the allegation of reprisal. We found that the average investigation time for all cases that DOD (that is, both DODIG and the service IGs) investigated and closed in fiscal years 2013 and 2014 was 526 days. The average length of DODIG- investigated cases closed in fiscal years 2013 and 2014 was 443 days. The average length of service IG–investigated cases during this time was 530 days, which is almost three times DOD’s internal timeliness requirement. For cases DODIG dismissed after completing the complaint intake process, the average processing time was 48 days. See table 1 for details regarding case-processing times for cases closed by DODIG and the service IGs in fiscal years 2013 and 2014. In our total timeliness calculations for all DOD investigations, we did not include complaints that DODIG or the service IGs dismissed at intake because the IG determined that the complaint did not have sufficient evidence to warrant an investigation. While the statute requires the service IG receiving the reprisal allegation to promptly notify DODIG of the allegation, services do not consistently provide DODIG notification when they receive complaints that do not contain a protected communication or personnel action, according to service IG officials and guidance. Specifically, the Air Force IG’s guidance states that DODIG must be notified when a complaint contains an allegation of reprisal. However, the guidance states that a complaint does not contain a reprisal allegation unless the first two elements of reprisal—a protected communication and a personnel action—are present. DODIG officials stated that any service determination that a complaint does not meet its first two elements of reprisal must be submitted to DODIG for oversight. However, officials from the two service IGs, which accounted for approximately 80 percent of the service IG reprisal investigative workload in fiscal years 2013 and 2014 told us that they do not track or report to DODIG complaints that they dismiss at intake because they lacked a protected communication or personnel action. Since DODIG does not have data on cases that the services dismiss at intake, because the services do not notify them of these cases, we did not have data on all cases that were dismissed at intake. Therefore we reported the timeliness of cases that DODIG dismissed at intake separately, and did not include them in our overall timeliness calculations. In fiscal years 2013 and 2014, DODIG investigated and closed a total of 39 cases and dismissed another 375 complaints after completing the intake process. The service IGs closed a total of 674 cases during this period. See table 2 for the number of cases closed by each investigating organization in fiscal years 2013 and 2014. DOD received a total of 640 reprisal complaints in fiscal year 2013 and 584 reprisal complaints in fiscal year 2014. As of September 30, 2014, DODIG and the service IGs had a total of 822 open military whistleblower reprisal cases. While the majority of these open cases were filed from fiscal years 2012 through 2014, some of these cases had been open since fiscal year 2008. We found that almost 20 percent of DOD’s open military reprisal cases were filed in fiscal year 2012 and had been open for at least 2 years. Further, approximately 33 percent of the open military reprisal cases were filed in 2013 and had been open for at least 1 year. Table 3 provides additional information on DOD’s open military reprisal cases and when the servicemembers filed their reprisal complaints. Appendix II provides information about substantiation rates and the general characteristics of military whistleblower reprisal cases. DOD officials described several factors affecting the timeliness of military reprisal investigations and stated that they are taking steps to improve investigation timeliness. For example, in addition to investigations, DODIG’s workload includes completing the intake process for complaints filed with DODIG. Intake requires staff to review complaints and determine whether there is sufficient evidence for those complaints to warrant an investigation. As we stated previously, DODIG dismissed 375 complaints after completing the intake process in fiscal years 2013 and 2014. Further, service IG officials indicated that the decentralized investigation structure is a factor that affects the timeliness of their investigations. For example, service IGs assign investigations to field- level investigators, which, according to officials, results in a multilayer review process as the investigation is reviewed by each organizational level of the service with each layer of review adding to case-processing times. Additionally, all six field-level service investigators we interviewed stated that, in their opinion,180 days was not a reasonable amount of time to complete all investigations unless an investigator has no competing responsibilities and is able to focus solely on one reprisal investigation at a time. Service IG investigators further stated that in addition to competing responsibilities, the complexity of cases, the volume of cases, and low staffing numbers all affect the timeliness of investigations. We found in February 2012 that DODIG also identified staffing shortages as a factor affecting the timely processing of cases and that staffing levels had not kept up with an increased reprisal caseload. DODIG officials stated that they have increased their personnel levels to accommodate the increased caseload. Specifically, DODIG’s Whistleblower Reprisal Investigations directorate increased from 30 staff in January 2012 to 53 staff in March 2015. Further, DODIG officials stated that DOD leadership has made improving the timeliness of administrative investigations—which include both investigations of whistleblower reprisal and of other allegations made against senior officials—a priority. Specifically, in an effort to improve the timeliness of senior official investigations, including senior official whistleblower reprisal cases, DODIG convened a timeliness task force in coordination with the service IGs, which issued a report with recommendations in November 2014. Specifically, the task force recommended that DODIG expand its case management system to track and manage the timeliness of senior official investigations. DODIG officials stated that they believe the expansion of the case management system will improve timeliness for all reprisal investigations. Following the issuance of the task force’s report, in January 2015, the Deputy Secretary of Defense issued a memorandum endorsing the findings of the report, specifically stating that the service IGs should not impose any staffing reductions on the investigation offices because they must be adequately resourced when faced with multiple high-priority investigations. GAO-12-362. the final outcome. DODIG officials stated that they use this metric to track timeliness for service IG reprisal investigations. However, according to officials, this calculation is inaccurate for cases opened prior to the case management system being implemented in December 2012, which accounts for approximately 24 percent of open investigations. Specifically, based on the results of our file review, we estimate that the timeliness metric in DODIG’s case management system underestimates total case time for each case closed in fiscal year 2013 by at least 26 days on average, which limits DODIG’s ability to monitor the timeliness of all service IG investigations. DODIG officials stated that they are able to identify the cases that are affected by the inaccurate timeliness metric and that they have implemented processes to manually calculate the case age for these cases. Further, as we discuss later in this report, DOD has not implemented procedures to ensure accurate and complete recording of total case- processing time. DODIG collects timeliness information but cannot analyze the data to identify potential reforms because the case management system is under development and has limited reporting capabilities. In addition, the service IGs have separate case management systems; therefore the timeliness of all service investigative phases is not maintained in DODIG’s case management system, which does not allow DODIG to consistently track all case processing times. Finally, DODIG responds to ad hoc congressional requests related to investigation timeliness, but does not include overall timeliness information in its semiannual reports to Congress, as we recommended in February 2012. We continue to believe these recommendations are valid and should be implemented. DODIG implemented a new whistleblower reprisal investigation case management system to improve its monitoring of investigations; however, as of March 2015, the system is under development and has limited reporting capabilities. In addition, DODIG has provided its staff with limited user guidance on how to use and record information in the case management system. Further, DOD’s use of multiple case management systems hinders its visibility over total workload and investigative activity at the service IG level, such as the number and status of military whistleblower reprisal investigations in process at the service IGs. DOD’s planned expansion of its reprisal case management system to the service IGs may not result in improved visibility over its workload without further planning and guidance. In February 2012, we found that DOD’s efforts to improve case processing-times had been hindered by unreliable and incomplete data, and, as previously discussed, we recommended that DOD implement policies and procedures to ensure accurate and complete recording of In case-processing time. DOD concurred with this recommendation.December 2012, DODIG took steps to improve its military whistleblower reprisal investigation data by implementing a new case management system to monitor its administrative investigations, including senior official and whistleblower reprisal investigations. We found the data from this case management system reliable for our purposes of reporting the average lengths of investigations for this report—an improvement since February 2012, when we reported that similar data from DODIG’s previous system were not reliable for our reporting purposes. According to DODIG, the case management system is intended to streamline processing, investigations, and service IG oversight reviews by serving as an automated, real-time complaint tracking and investigative management tool that electronically stores all case-file documentation. However, as of March 2015, the case management system was under development and according to officials has limited reporting capabilities. According to a DODIG official, DOD selected an incremental process to develop the case management system in order to incorporate user feedback into each phase of development, and, in accordance with this type of development, in December 2012 DODIG staff began using the case management system prior to the completion of the system. DODIG officials stated that they had planned to finish the development of the case management system by February 2014; however, according to these officials, DODIG delayed funding for the final development phase until fiscal year 2015, delaying the completion of the case management system. As a result of the delayed funding, DODIG has not been able to incorporate all user feedback to ensure that the case management system is fully functioning at the desired level, according to DODIG officials. For example, according to DODIG officials, the case management system’s reporting capabilities are limited. The case management system contains the fields necessary to track the length of various investigative phases for DODIG investigations as we recommended in February 2012, such as the dates for the legal and internal review processes, but according to a DODIG official, it cannot track this information for service IG investigations. In addition, the case management system contains dashboards for users to manage cases by the whistleblower statutes for which DODIG is responsible. For example, users can view the dashboards to determine the number of investigations or oversight cases assigned to a particular investigator and the number of DODIG investigations over 180 days, among other things. DODIG can also determine the length of time it took to complete these phases when users drill down to individual cases and review key dates for these phases in the investigation and oversight events tabs. However, according to DODIG officials, DODIG is not able to extract and aggregate these data from its case management system for analysis and reporting purposes, which would allow it to identify possible areas for implementing case-processing reforms, as we recommended in February 2012. DODIG officials stated that even though they have not completed the final development phase of the case management system, using the system has improved their ability to provide oversight of the service IG investigations, allowing them to track the corrective actions that services have taken in substantiated reprisal cases. Officials stated they can also calculate overall case age, the number of days to complete the intake phase, the number of days to complete the investigation phase, and the number of days in oversight, in response to findings in our previous report. However, DODIG can calculate these milestones only for cases that it investigates, which is a small portion of the military reprisal investigations on which this report focuses. In addition, as we previously stated, we found the case management system’s field to calculate case age was inaccurate because it underestimates total case time for cases opened in the prior system and closed in fiscal year 2013 by at least 26 days on average. Further, according to DODIG officials, DODIG spent approximately $2.22 million on the development of the case management system as of February 2015, and plans to spend approximately $1.4 million to further develop the case management system prior to the end of fiscal year 2015. DODIG officials stated that they plan to complete the final phase of case management system development, which includes improvements to reporting capabilities, by the end of fiscal year 2015. Other needed improvements include restrictions on which cases users can access and edit, as well as additional fields to better track specific types of case outcomes, such as cases withdrawn by servicemembers, according to DODIG officials. However, DODIG officials stated that they are unsure of the extent to which they will be able to make improvements to the case management system during the next phase of development given their current funding levels. As a result, DODIG officials stated that they have initiated a process to prioritize the improvements based on necessary and desired changes. DODIG has provided limited guidance to case management system users on how to populate case information into the new whistleblower reprisal case management system. DODIG investigators have been using the case management system to manage reprisal investigations since December 2012. As previously discussed, according to officials, DODIG planned to finish the final development phase for its case management system in February 2014, but changed that benchmark to September 2015. According to an official, when the case management system was implemented, DODIG internally developed and provided its staff with a user manual. According to oversight investigators, guidance on the case management system is limited and does not include detailed operating instructions, such as the type of information to enter into the case notes fields. Further, one oversight investigator stated that the guidance DODIG provided before the system was implemented was minimal and included features of the system that were not yet operable. DODIG officials provided documentation of two types of guidance, a draft user manual created by Whistleblower Reprisal directorate staff with screen captures of the system, and desk aids for various staff positions that provide descriptions of the data fields the investigators are to complete. DODIG officials noted that they have issued several versions of the desk aids since they implemented the case management system. During our case file review, we found that DODIG investigators had incorrectly coded some cases in the case management system as fully investigated when the service IG had dismissed the case prior to a full investigation. Based on the results of our file review, we estimate that, in fiscal year 2013, about 43 percent of cases that DODIG investigators coded as fully investigated were incorrectly coded in this way. Due to these miscoded cases, we are unable to report on the number of military whistleblower reprisal complaints that DOD fully investigated in fiscal years 2013 and 2014. In its semiannual reports to Congress, DODIG reports on the number of military whistleblower reprisal investigations fully investigated by DODIG and the service IGs. DODIG officials stated that they use their case management system to compile information for these semiannual reports. Based on our estimate of the number of cases affected by the miscoding in fiscal year 2013, DODIG may have mischaracterized its investigative work in its fiscal year 2013 semiannual reports to Congress. DODIG officials stated that they were aware that DODIG staff had improperly coded some reprisal cases as fully investigated when they were dismissed prior to a full investigation, but that they were not aware of the extent of the miscoding. Further, DODIG officials stated that they are taking steps to ensure that future cases are coded properly. For example, DODIG officials said that once they realized that DODIG staff were coding cases incorrectly, they provided desk aids to users in March 2014 that describe how to code cases that were fully investigated and those that were dismissed prior to a full investigation. However, during our case-file review we found that DODIG staff were still coding cases incorrectly as of April 2014. Further, in September 2013, DODIG assigned an Investigations Analyst to monitor its whistleblower reprisal investigations data. According to DODIG officials, the Investigations Analyst uses a dashboard in the case management system which helps identify missing data or entry errors, and then manually corrects them. As previously discussed, DODIG’s case management system is to serve as a real-time complaint tracking and investigative management tool for investigators within its Administrative Investigations component. Further, DODIG’s fiscal year 2014 performance plan for oversight investigators notes that investigators should ensure the case management system reflects current, real-time information on case activity. However, based on our file review of a sample of 124 cases closed in fiscal year 2013, we found that DODIG investigators were not using the case management system for real-time case management as intended by DODIG officials. Specifically, we estimate that DODIG personnel uploaded key case documents to the case management system after DODIG had closed the case in 77 percent of cases closed in fiscal year 2013. For example, DODIG staff uploaded, among other things, reports of investigation, oversight worksheets, 180-day letters, and copies of the servicemembers’ complaints after the case had already closed, indicating that the case management system was not being used for real-time case management at that time. Further, we estimate that, for 83 percent of cases closed in fiscal year 2013, DODIG staff made changes to the case variables in the case management system in 2014, at least 3 months after case closure. For cases where DODIG made changes to the data, we estimate that about 68 percent had significant changes, such as changes to the date the servicemember filed the complaint and the organization that conducted the investigation, as well as the result code, which indicates whether the case was fully investigated. In explaining why the changes were made, DODIG officials stated that leadership from DODIG’s Whistleblower Reprisal Investigations directorate instructed oversight investigators and other DODIG staff to verify and correct the data as necessary for all cases closed in fiscal years 2013 and 2014 by comparing case management system data to case file documentation. DODIG officials stated that this was necessary to ensure the reliability of DODIG’s investigative data because the case management system was new to investigators and they had not been consistently recording information. Further, officials stated that prior to the implementation of the case management system, investigators reviewed hard-copy case files of service IG investigations and they did not immediately transition to reviewing case files electronically when the case management system was implemented in December 2012. The guidance DODIG has issued for the new case management system does not include instructions that the staff are to use the system for real-time case management and investigation review or which types of events to record, both of which could have helped guide the transition from hard-copy to electronic case file review. DODIG officials stated that they plan to further develop their draft manual for the case management system expansion to the service IGs which they anticipate will be complete by the end of fiscal year 2016, as discussed later in the report. Officials further stated they will continue to update internal desk aides, which contain only descriptions of the case management system’s fields, as needed, but do not plan to issue additional internal guidance for DODIG staff on the case management system because they believe that the current guidance is sufficient. However, DODIG’s draft user manual does not instruct users on how to access the system, troubleshoot errors they may encounter, or monitor their caseloads using the case management systems dashboards. Further, DODIG’s Administrative Investigations manual, which provides guidance to the Whistleblower Reprisal Investigations directorate staff, is outdated because it refers only to DODIG’s prior case management system, which was replaced in December 2012. According to CIGIE quality standards for investigations, accurate processing of information is essential to the mission of an investigative organization. It should begin with the orderly, systematic, accurate, and secure maintenance of a management information system. Written guidance should define the data elements to be recorded in the system. Further, management should have certain information available to perform its responsibilities, measure its accomplishments, and respond to DODIG officials stated that requests by appropriate external customers.they plan to develop a user manual when they expand the case management system to service IGs, as discussed later in the report. Without updating and finalizing the internal user guidance from 2012 as necessary until the case management system is complete, including providing instructions on how to use the system as a real-time tracking system in the meantime, DODIG will continue to face challenges in its ability to report on the military whistleblower reprisal program. For example, unless investigators update and upload case information during the course of an investigation, DODIG will be unable to report on the real- time status of investigations and therefore may not be able to respond to congressional requests for case information without significant efforts. Further, DOD uses the case management system to compile information for reporting to Congress on its military reprisal investigation workload and thus may have inaccurately represented its workload—the number of cases fully investigated—to Congress in its semiannual reports. Without updating and finalizing internal guidance on how to correctly enter case information into the case management system, DODIG cannot ensure the reliability of its data without manually reviewing and correcting each case. Each service IG conducts and monitors the status of military whistleblower reprisal investigations in a different case management system. Although DODIG has access to one of the service’s case management systems, according to officials DODIG does not have complete visibility over service investigations from complaint receipt to investigation determination. As a result, DODIG may not know that some servicemembers have filed reprisal complaints until the service IGs forward the completed reports of investigation to DODIG for review. Further, DODIG does not have knowledge of the real-time status of service-conducted investigations and is unable to anticipate when service IGs will send completed reports of investigation for review, according to officials. DODIG is required to review all service IG determinations in military reprisal investigations in addition to its responsibility for conducting investigations of some military reprisal complaints. Without a common system to share data, DODIG’s oversight of the timeliness of service investigations and visibility of its own future workload is limited. Our analysis indicates that DODIG’s case management system did not have record of at least 22 percent of service investigations both open as of September 30, 2014, and closed in fiscal years 2013 and 2014. According to DOD officials, DOD’s decentralized structure for military reprisal investigations, paired with the fact that servicemembers can submit complaints to DOD or their respective service IG, or their chain of command, contributes to the possibility of duplicate complaints or that one IG fails to notify another of an ongoing reprisal investigation. According to DOD Directive 7050.06, when the service IGs receive reprisal complaints from servicemembers, those offices are required to notify DODIG within 10 days; however, based on our file review, we estimate that there was no evidence of this required notification in 30 percent of cases closed in fiscal year 2013 where the servicemember In response, DODIG officials filed the complaint with the service IG.noted that one of their oversight investigators was assigned to reconcile DODIG’s open military reprisal investigations with the service’s open reprisal investigations in fall 2013. According to service IG officials, this reconciliation is conducted at various points throughout the year by manually comparing lists of investigations from each IG’s respective case management system. Through our analysis we identified challenges reconciling DODIG and services IG cases because the investigating organizations do not share a common case identifier. In addition, in fiscal years 2013 and 2014 each investigating organization did not consistently track the other organization’s unique case identifier. DODIG officials stated that they have since taken steps to ensure that DODIG tracks the service IGs’ case identifiers in its case management system. For example, the oversight investigator that DODIG assigned to reconcile cases updates service case identifiers in DODIG’s case management system as part of the reconciliation process. Further, service IG officials stated that there have been instances where DODIG did not notify them that it was investigating a reprisal complaint from one of their servicemembers and they did not find out about the investigation until after DODIG had conducted the investigation. Standards for internal control in the federal government state that, for an entity to run and control its operations, it must have relevant, reliable, and timely communications relating to internal and external events. DOD is taking steps to improve its visibility over service investigations. In November 2014, a DODIG task force that focused on improving the timeliness of DOD’s senior official investigations recommended that DOD expand the case management system to the service IGs as a way to improve investigation timeliness. According to DODIG officials, expanding the case management system is also an effort to improve DODIG’s visibility of administrative investigations conducted by the service IGs. In January 2015, the Deputy Secretary of Defense endorsed the recommendation to expand the case management system to the service IGs, stating that an enterprise data system is essential to achieving a more seamless and efficient processing of complaints and investigations across the department. that they plan to expand the case management system to the service IGs by the end of fiscal year 2016. Deputy Secretary of Defense Memorandum, Report on Task Force to Improve Timeliness of Senior Official Investigations. However, DODIG does not have an implementation plan for the expansion and has not yet taken steps to develop one. According to DODIG officials, they are in the process of developing a strategy to expand the case management system and are in the early stages of the planning process. DODIG officials stated they have set an aggressive time frame for the expansion because leadership has made investigation timeliness a priority and they believe a common case management system is part of the solution. Officials stated that they have completed the process to classify the case management system as a defense business system in April 2014 and that DODIG has been using the system to process all whistleblower reprisal investigations since December 2012. Further, officials stated that they developed a working group comprising representatives of each of the service IGs to facilitate planning for the expansion. The working group held its first meeting in February 2015, and plans to meet bimonthly until the expansion is complete. A DODIG official tasked with leading the expansion of the case management system stated that he intends to refer to best practices for project management to help facilitate the planning process for this expansion project. The Project Management Institute’s Guide to Project Management Body of Knowledge (PMBOK® Guide) provides guidelines for managing individual projects, including developing a project management plan. A project management plan defines the basis of all project work, including how the project is executed, monitored and controlled, and closed. According to the PMBOK® Guide, project management plans should include a scope—to describe major deliverables, assumptions, and project constraints—project requirements, schedules, costs, stakeholder roles and responsibilities, and stakeholder communication techniques, among other things. Further, project management plans are to be updated when issues are found during the course of the project, which may modify project policies or procedures, and when actions are needed to forestall negative effects on the project. Project management plans also include methods to define and document stakeholder needs. According to the Project Management Institute, detailed requirements documentation is essential for stakeholders to understand what needs to be (1) done to deliver the project and (2) produced as the result of the project. DODIG officials stated that, in coordination with the service IGs, they will review and incorporate some needs of each service IG prior to expanding the case management system, but they do not plan to fully customize the case management system for each service IG, such as developing a different interface for each service. Service IG officials expressed concerns that they have requirements, such as specific data fields and report capabilities to meet leadership needs to be incorporated into the case management system prior to expansion. For example, service IG officials stated that it is important that case management system user roles are defined in a way that reflects how their organizations operate and that case access is restricted according to the organizational level of the user. Some service IG officials stated that they are concerned that DODIG will expand the case management system without incorporating all of their needs and that they will not be able to meet their respective service leaderships’ reporting requirements as a result. These officials stated that if DODIG’s case management system does not meet their needs they may need to continue to use their current case management systems, which would be duplicative. Given DOD’s stated plans to expand the case management system to the service IGs by the end of fiscal year 2016, doing so without developing an implementation plan that addresses the needs of DODIG and the service IGs, and defines project goals, schedules, costs, stakeholder roles and responsibilities, and stakeholder communication techniques, puts DODIG at risk of creating a system that will not improve its visibility over total workload or investigation timeliness. Further, without such a plan, DODIG may not be well-positioned to monitor the expansion and measure project success. In addition, without developing a plan in coordination with the service IGs that defines the roles and responsibilities of all stakeholders, and sets expectations for communication, DODIG may not be able to balance all stakeholder needs and interests. Further, as previously discussed, DODIG has not completed the development of the case management system and it does not meet DODIG user needs. Finally, in the absence of an implementation plan that adequately addresses the requirements of the service IGs, the service IGs may not know whether or when their needs will be met and as a result they may unnecessarily continue to use their own systems, which could be duplicative. In 2011, DOD designated a team in DODIG’s Directorate for Whistleblower Reprisal Investigations to review service-conducted investigations on a full-time basis; however, DODIG has not formalized the process for the review of military whistleblower reprisal investigations. For example, it is unclear to what extent DODIG has incorporated the relevant investigative standards into its process. Several factors affect the quality of DOD’s oversight of service-conducted military whistleblower reprisal investigations, including the absence of standardized guidance and DODIG feedback to the service investigators. Finally, DOD does not have a tool for investigators to certify their independence to ensure its military whistleblower reprisal investigations are objective in fact and appearance. In September 2011, DODIG took steps to improve its oversight of service IG investigations by establishing an investigator team that is solely dedicated to the oversight review of service IG-conducted military reprisal investigations, according to officials, but it has not formalized its process by providing detailed guidance to its oversight team. DODIG is responsible for reviewing and approving service determinations regarding whistleblower reprisal complaints, including both (1) service determinations that an investigation into a reprisal complaint is not warranted, and (2) the results of completed service reprisal investigations. To improve oversight, DODIG officials said that they staffed the team with investigators who had experience at either DOD or service IGs. The oversight investigators are to document their review using an oversight worksheet, which captures information about how the service investigation was conducted as well as the investigation’s findings and conclusions. DODIG has used various versions of this oversight worksheet since it established the oversight team. Our case-file review included case files closed in fiscal year 2013, and during this period DODIG’s oversight worksheet was designed to capture information about (1) the servicemember’s allegations of reprisal, (2) the personnel action or actions taken against the servicemember, (3) service investigation thoroughness, (4) documentation, (5) timeliness, (6) objectivity, and (7) whether there were any deficiencies or inconsistencies in the service investigation report, among other things. DODIG adheres to CIGIE standards, but the extent to which it incorporates these standards is unclear, and service IGs are not members of CIGIE. CIGIE’s Quality Standards for Investigations provide a framework to help ensure high-quality investigations are conducted by member IG offices. CIGIE’s general standards apply to investigative organizations and include investigator qualifications, independence, and due professional care. CIGIE’s qualitative standards relate to how the investigation is planned, executed, and reported, as well as how the investigative information is managed. As a CIGIE member, DODIG is expected to incorporate CIGIE’s quality standards into its operations manuals or handbooks. Table 4 highlights some of the CIGIE standards that DODIG has incorporated into its oversight worksheet that investigators use to review service IG investigations. We found that DODIG’s attestation to CIGIE standards, which is part of its oversight review, was inconsistent. For example, DODIG has changed the language on versions of its oversight worksheet between 2012 and 2014, and DODIG oversight investigators did not always attest to whether the investigations in our fiscal year 2013 sample were conducted in accordance with CIGIE standards. As a member of CIGIE, DODIG must develop and document its quality-control policies and procedures in accordance with its agency requirements, then communicate those policies and procedures to its personnel, according to CIGIE standards. The oversight worksheet that DODIG was using as of March 2015 did not contain a block for CIGIE attestation, to indicate whether the investigation was conducted in accordance with CIGIE standards, but the worksheet asks whether the investigator gathered all relevant evidence and whether the investigator demonstrated IG impartiality during interviews. In contrast, the oversight worksheet that DODIG oversight investigators used during the fiscal year 2013 time frame of our sample contained template language for the oversight investigator to indicate whether the service conducted the investigation in accordance with CIGIE standards, but the worksheets in our sample did not consistently attest to whether the approved investigation adhered to CIGIE standards, and the basis for the determination was unclear. Specifically, of the 89 service IG investigations in our sample, DODIG oversight investigators attested that 55 percent of them were conducted in accordance with CIGIE standards as reflected on the oversight worksheet. Further, the service IGs are not members of CIGIE, and the service IG investigators are not subject or consistently trained to CIGIE standards. In 2012 DODIG hired a training officer and in 2013 developed a basic whistleblower reprisal investigations course for DODIG and service IG investigators. DODIG officials stated that they incorporated some CIGIE standards into this and other trainings as well as in their semiannual symposiums, but service IG officials stated that these DODIG-offered trainings do not reach all field-level investigators. A senior DODIG official stated that even though the service IGs are not subject to CIGIE standards, DODIG would not approve a service IG investigation that did not appear to adhere to CIGIE standards. Also, while DODIG’s Administrative Investigations manual directs DODIG investigators to follow CIGIE standards, none of the DODIG-conducted military reprisal investigations in our sample included an attestation similar to the statement on the oversight worksheet for service IG cases stating they adhered to CIGIE standards. DODIG officials stated that the attestation is not necessary for its own reprisal investigations because, as a CIGIE member, all of its investigations adhere to CIGIE standards. DODIG provided the oversight team with limited instructions on how to review service IG cases. We interviewed each member of DODIG’s oversight team to discuss their procedures for investigation review and found that they have different approaches for how they review investigations prior to completing the oversight worksheet. For example, some read the allegation of reprisal first, while others begin their oversight review by reading the service investigator’s report of investigation. According to the oversight investigators we spoke to, once they review the investigation documentation and complete the oversight worksheet, they are to forward the package to their supervisors for discussion and review. For some cases, before final approval, oversight investigators discuss the oversight review during regular meetings with other oversight investigators, and with Whistleblower Reprisal Investigation management, according to officials. Finally, officials stated that management reviews some case files before DODIG issues the approval memo back to the service IG. DODIG officials stated that they have informal weekly meetings with the oversight team to discuss cases and oversight processes; however, some of the oversight investigators we spoke with noted that they had not received any detailed guidance that was specifically focused on how to conduct oversight of service IG military reprisal cases. For the 89 oversight files in our sample, DODIG rarely disagreed with the service IG’s final determination of whether to substantiate the reprisal allegation(s), even if the oversight investigator noted deficiencies in the investigation documentation. We estimate that DODIG sent the case back to the service IG for additional work in about 8 percent of service cases closed in fiscal year 2013. DODIG disagreed with the service determination of whether to substantiate the complaint, and took over the investigation, in 2 of the cases in our sample. DODIG officials stated that oversight investigators are in regular contact with the service IG headquarters to correct inadequacies in service investigations, but that these communications may not be documented in the case files. During our case file review, we identified examples of DODIG oversight investigators not consistently completing the oversight worksheet. Specifically, from the results of our case file review, we estimate that for about 45 percent of service investigations closed in fiscal year 2013, DODIG oversight worksheets were missing narrative that indicated the investigator had thoroughly documented all case deficiencies or inconsistencies, as required on the oversight worksheet. In those 45 percent of cases, we noted issues that include the following: Case deficiencies were not consistently documented: Some service investigation case files did not contain all DODIG required elements, such as required letters, interview transcripts or summaries, legal reviews, and other supporting documentation, but the oversight investigators did not note the missing documentation on the oversight worksheet. Specifically, we estimate that in 19 percent of service investigated cases, the oversight investigator indicated that there were adequate transcripts or summaries of testimony; however, documentation of those interview transcripts was not included in the case file. DODIG did not always note deficiencies that service IG headquarters identified: We found instances in which DODIG investigators did not document deficiencies that the service IGs had identified. For example, a service IG-completed oversight worksheet, included in the investigation case file the service IG forwarded to DODIG for review, noted that the investigators did not appear fair and impartial in the servicemember interview transcript. In this interview transcript the investigator stated that in the military nothing is unbiased because there is a chain of command; however, DOD oversight investigators attested that the investigative file did not contain evidence of bias on the oversight worksheet. DODIG officials stated that there is no written requirement for oversight investigators to note deficiencies identified by the service IGs; however on oversight worksheets for other cases, the oversight investigators did note service IG-identified deficiencies. Service IG officials also highlighted inconsistencies between the oversight investigators. For example, service IG officials stated that they prefer to work with certain DODIG oversight investigators because they know what to expect from those oversight investigators, and this speeds up the oversight review. In contrast, these officials stated that they receive more questions about cases from oversight investigators with whom they work less frequently. DODIG did not always explain why deficiencies did not affect the outcome of the service investigation: In the instances when the DODIG oversight investigator identified deficiencies with the service IG investigation, the oversight investigator typically included a statement indicating that the noted deficiencies did not have a material effect on the outcome of the investigation. However, the oversight investigators did not always explain why the deficiencies did not affect the outcome of the investigation. For example, on some oversight worksheets that we reviewed, the oversight investigators noted that the service IG investigator did not analyze a protected communication or a personnel action as part of the investigation, but that these items did not affect the outcome of the investigation. We also found that the files in these cases lacked documentation of the oversight investigators’ analysis of the effect of noted deficiencies on the outcome of the investigation. Oversight investigators stated that when they note any deficiencies in investigations, they typically discuss those deficiencies with their supervisors in order to determine whether to approve the case. DODIG officials stated that there are several gray areas in reprisal investigations and that these types of discussions are common practice when DODIG is deciding whether to approve a case; however, we found in our case-file review that the results of these conversations are not always documented on the oversight worksheet. CIGIE standards state that reasonable steps should be taken to ensure that pertinent issues are sufficiently resolved and that the results of investigative activities should be accurately and completely documented in the case file. Further, Standards for Internal Control in the Federal Government provide that internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. Ensuring that oversight investigators document the basis for their determinations regarding independent decision making enables reviewers to ensure that such determinations are appropriate. Moreover, DODIG does not have detailed guidance that specifies the steps and documentation requirements of the DODIG oversight investigators’ review of service reprisal investigations, and whether or how any noted investigation deficiencies would affect the outcome of the investigation. DODIG has focused on its October 2014 issuance of the updated Guide to Investigating Military Whistleblower Reprisal and Restriction Complaints, which details best practices for reprisal investigations, but does not specify the steps DODIG investigators are to follow when conducting oversight of service IG investigations. In addition, DODIG’s Administrative Investigations manual includes a 5-page overview of oversight reviews. However, the manual is not specific to oversight reviews of military whistleblower reprisal investigations and encompasses investigations of senior officials, and does not state what deficiencies are substantive and would affect the outcome of the investigation. Further, part one of DODIG’s Administrative Investigations manual refers investigators to a forthcoming third portion of the manual for detailed guidance on conducting oversight of military whistleblower reprisal investigations, which has not been developed. However, as of January 2015, DODIG officials stated that they were no longer planning to issue the third part of the manual and that they plan to incorporate some additional oversight procedures into the existing manual. Officials did not provide details on what procedures they plan to incorporate or when they plan to make the changes. Without additional guidance for its oversight investigator team, which would help formalize the oversight process, DODIG will continue to face inconsistency in both its oversight documentation and its review of service IG investigation outcomes. CIGIE standards state that to facilitate due professional care, organizations should establish written investigative policies and procedures. The complexity of reprisal investigations paired with the decentralized service IG structure underscores the importance of clear and consistent oversight review procedures and documentation requirements to ensure consistency across the department and that each reprisal complaint receives due professional care. Senior DODIG officials stated that DODIG’s Administrative Investigations component is taking steps to implement quality-assurance processes and that these processes will help prepare the component for an eventual peer review. For example, a senior DODIG official said that on a quarterly basis, DODIG completes an internal control checklist for 20 DODIG whistleblower reprisal investigations and 20 oversight reviews of service IG military whistleblower reprisal investigations to assess the thoroughness of the case files and the completeness of the information in the case management system, among other things. This official also stated that they brief DODIG leadership on the results of these quarterly quality-assurance checks. The Whistleblower Reprisal Investigations directorate has undergone external reviews, but CIGIE has not established peer-review criteria for administrative investigations, such as whistleblower reprisal investigations, according to DODIG officials. Senior DODIG officials stated that, if established, they would like to participate in an eventual administrative peer review of their whistleblower reprisal investigations. However, without documentation of the steps it took to reach its case determinations and why any noted case deficiencies did not affect the outcome of the investigation, as well as consistent attestation of adherence to CIGIE standards, a third-party reviewer may find it difficult to assess the quality of DODIG’s oversight process for military whistleblower reprisal investigations. DODIG and the service IGs use different terms in their guidance to refer to their investigation stages. DODIG took a step to improve guidance by issuing an updated reprisal investigation guide for military reprisal investigations for both DODIG and service IG investigators in October 2014. The guide discusses DODIG’s four questions that investigators use to determine whether the four elements of reprisal are present; various investigative steps; and, provides sample interview questions, among other things. However, DODIG describes the guide as best practices for conducting military reprisal intakes and investigations and, according to DODIG officials does not explicitly direct the services to follow DODIG’s preferred investigation process and stages. DODIG officials stated that they have no role in the development of service IG regulations. DODIG guidance describes two investigation stages: (1) intake and (2) full investigation. During the intake process, the investigator is to determine whether the servicemember made a protected communication and a responsible management official took a personnel action against the servicemember. In addition, if the investigator determines that the allegation supports an inference that the responsible management official had knowledge of the protected communication as well as a causal connection between the protected communication and the personnel action, and the servicemember reported the alleged reprisal within 1 year, the case is to proceed to a full investigation. According to DODIG’s investigation guide, during the intake process an investigator is to review the complaint, personnel action, and timeline; and interview the servicemember to clarify the allegation. During a full investigation, investigators are to formally interview the servicemember (and provide a written record of the interview), obtain relevant documentation (of the protected communication and personnel action, among other things), interview knowledgeable witnesses, interview the responsible management official who took the personnel action, and obtain a legal review of the report of investigation. Each of the service IGs has a stage between intake and full investigation, commonly referred to as a preliminary inquiry or a reprisal complaint analysis. DODIG does not have a similar in-between investigation stage, and therefore DODIG officials stated that oversight investigators should classify preliminary inquiries conducted by the service IGs as intakes in the case management system, but there is no written guidance for reviewing preliminary inquiries. We found that the service investigators typically complete much more investigative work, such as interviewing witnesses, when conducting a preliminary inquiry than DODIG requires during the intake process. Based on our case file review, we found that DODIG oversight investigators were not consistently classifying the preliminary inquiries as intakes, and classified many preliminary inquiries as full investigations in the case management system. DODIG oversight investigators approved cases as full investigations when those cases did not contain all elements required for full investigations and approved the dismissal of cases that were preliminary inquiries coded as full investigations, on a basis that can only be determined by conducting a full investigation. Specifically, we estimate that in 38 percent of preliminary inquiries closed in fiscal year 2013, service IGs dismissed cases because they determined that the responsible management official would have taken the personnel action absent the protected communication. In contrast, DODIG guidance states that an investigator answers the question of whether the responsible management official would have taken the personnel action absent the protected communication during a full investigation, which requires an interview with the responsible official to determine his or her reasons and motive for taking the personnel action. In addition, a senior DODIG official stated that an investigator must interview the responsible management official to determine whether the personnel action would have occurred absent the protected communication. However, there was no evidence in these case files that the investigator interviewed the responsible management official, and instead, investigators determined that the responsible management officials took personnel actions as a result of the servicemembers’ performance histories. Further, we found through our file review that the service IGs’ preliminary inquiry case files were less complete than the service IGs’ full investigation case files, although DODIG oversight investigators approved preliminary inquiries as full investigations. For example, based on our sample results, we estimate that at least 79 percent of service preliminary inquiries closed in fiscal year 2013 were missing at least one key element, such as interviews with the servicemember. We estimate that at least 23 percent of service full investigations closed in fiscal year 2013 were missing at least one element. Further, as previously discussed, DODIG’s guidance requires investigators to interview the servicemember for all complaints, during the intake process and if the case proceeds to a full investigations; however, we estimate that 59 percent of service preliminary inquiry case files compared to 10 percent of service full investigation case files were missing evidence of a servicemember interview. CIGIE quality standards for investigations state that to facilitate due professional care, organizations should establish written investigative policies and procedures that are revised regularly according to evolving laws, regulations, and executive orders. DODIG’s investigation guide does not discuss preliminary inquiries or define any requirements for this stage of investigation. DODIG officials have stated that they would like the service IGs to stop preparing preliminary inquiries and to use DODIG’s preferred investigation stages—intake and full investigation; however, DODIG guidance does not explicitly direct the services to use its preferred terms and stages. Additionally, a DODIG oversight investigator stated that the service IGs’ varying interpretations of DOD policy and inconsistent application of DODIG guidance makes it difficult for oversight investigators to systematically review reprisal cases. The oversight investigator also stated that DODIG should explicitly direct the services to follow certain procedures currently included in DODIG guidance, but DODIG officials stated the office does not have a role in the development of service IG regulations. Further, in the absence of standardized investigation stages, DODIG investigators miscoded investigations in fiscal year 2013. We estimate that about 43 percent of the cases that DODIG closed in fiscal year 2013 that staff coded as full investigations were not fully investigated, and were instead preliminary inquiries as indicated in the service report of investigation. DODIG officials stated that this miscoding was likely the result of oversight investigators wanting to recognize the amount of work that service IG investigators completed, since those investigators typically complete the steps of a full investigation, except for an interview with the responsible management official and a legal review. Without directing the service IGs to follow standardized investigation stages and issuing guidance clarifying how the stages are defined, it will be difficult for DODIG to ensure consistent program implementation. For example, the service IGs may do more investigative work than DODIG requires by conducting a preliminary inquiry, when DODIG would dismiss the case at intake. On the other hand, the service IGs may dismiss cases after conducting a preliminary inquiry when a DODIG investigator would conduct a full investigation and collect additional testimonial evidence. The amount of investigative work is inconsistent across DOD and is dependent on which IG investigates the complaint, which could lead to the perception that not all servicemember complaints are treated equally. In addition, without standardized investigation stages and corresponding guidance, investigators may be unclear about what elements are required for each stage of investigation, resulting in incomplete reprisal case files. Finally, without standardized investigative stages and agreement among DODIG oversight investigators about how to classify preliminary inquiries, DODIG may continue to miscode service preliminary inquiries in its case management system. Since this system is the basis for DODIG’s semiannual reports to Congress, DODIG may mischaracterize the number of fully investigated complaints in these reports. DODIG has developed tools to assess service IG investigation quality and to note any case deficiencies, but DODIG does not consistently provide the service IGs with this feedback. As previously discussed, DODIG oversight investigators are to document their reviews of service IG investigations by completing an oversight worksheet. The worksheet contains the criteria against which the reports of investigation are to be evaluated to ensure that the investigations adhered to CIGIE professional standards, such as independence and thoroughness. The worksheet also includes spaces where the oversight investigator can include comments regarding any criteria the investigation did or did not meet. According to DODIG’s Administrative Investigations manual, which guides how DODIG investigators conduct and perform oversight of reprisal investigations, upon completion of the oversight review process, investigators are to provide the service IGs with copies of the oversight worksheet. The manual further states that this affords a good mechanism for feedback to the services on the quality of individual cases, in addition to valuable information on trends in systemic deficiencies in investigations within their service. However, according to DODIG officials, in 2012 DODIG stopped providing the service IGs with completed oversight worksheets. Instead, these officials stated that they provide summarized feedback in the closure memorandums that they send to the service IGs once they approve a case. According to DODIG officials, the oversight investigators complete the oversight worksheet when reviewing service IG cases, but the worksheet is now used as an internal tool for review. Service IG officials stated that the primary feedback they receive is DODIG’s summarized case analysis on the closure memorandum, which discusses why it agreed with the service IG’s determination; however, the closure memorandum, unlike the worksheet, does not include the criteria against which the investigations are assessed. Further, service IG officials stated that they upload DODIG’s closure memorandums to their respective case management system, but they do not require the investigating officers to go into the case management system to review the closure memorandum. A DODIG oversight investigator noted that the feedback oversight investigators provide on the worksheet is more constructive than what they include on the closure memorandum, and a service IG official stated that what investigators need is constructive feedback, not just statements about what they did not do correctly. A senior service IG official stated that receiving copies of the oversight worksheets was beneficial to service investigators because the worksheets helped investigators understand what DODIG was looking for in its reviews of service investigations. Additionally, according to service IG officials, DODIG rarely sends cases back to them for additional work and rarely asks questions regarding cases they have sent to DODIG for review. Service IG officials indicated that this lack of case-specific feedback from DODIG is confirmation to them that they are meeting DODIG’s expectations for investigations; however, DODIG oversight investigators noted that the quality of service IG investigations could be improved. Further, through our review of cases closed in fiscal year 2013, after DODIG stopped providing copies of the oversight worksheets, we found examples where oversight investigators were providing case- specific feedback intended for the service IG investigators. For example, on some oversight worksheets the oversight investigator noted that the feedback provided on the worksheet was intended to be a teach-and-train vehicle to improve the quality and thoroughness of future reports; however, per DODIG’s new practice, it is unclear whether DODIG provided these oversight worksheets to the service IG investigators. DOD officials have noted that feedback to service IG investigators is important for various reasons. First, the DOD investigative process is decentralized and lacks continuity. Many offices at various levels of the service IGs investigate reprisal complaints. Further, in the Army and Air Force—which accounted for approximately 80 percent of the service investigative workload in fiscal years 2013 and 2014—military investigators typically rotate every 3 years, according to service IG officials. As such, these service IG military investigators may conduct few reprisal investigations and may not have the opportunity to develop experience, which according to DOD officials is essential to conducting high-quality reprisal investigations. The service IGs have taken steps to provide feedback to field-level investigators. For example, one service IG holds quarterly video-teleconferences with field-level investigators to share updates to reprisal policies and address any investigation trends. Second, according to service IG investigators, they receive some required training that is specific to conducting reprisal investigations when they are assigned to the IG, but there is no additional mandatory reprisal-specific training that investigators complete during the course of their careers. Additionally, these investigators may not have opportunities to apply lessons learned from that training immediately, and according to DOD officials there is often a gap of over a year between training and reprisal investigation assignment. According to CIGIE quality standards for investigations, organizations should establish appropriate avenues for investigators to acquire and maintain the necessary knowledge, skills, and abilities. Service IG investigators noted that in addition to offered training, case-specific feedback is a good way to learn skills for conducting reprisal investigations; however, three of six field-level investigators we interviewed stated that they had never received feedback from DODIG on their reprisal investigations. If the service IG investigators do not receive copies of the oversight worksheet, they may not have knowledge of the criteria that DODIG uses to conduct its oversight reviews and whether their investigative reports are meeting the specific CIGIE standards that DODIG has incorporated into its oversight review. For example, three of six field-level investigators we interviewed had not seen a DODIG oversight worksheet, and two of those three investigators did not know that DODIG used a worksheet to conduct oversight. DODIG’s October 2014 guide for investigating reprisal complaints includes a quality-assurance review checklist, modeled after the DODIG oversight review worksheet, that investigators can use to perform a quality-assurance review of their investigation. However, as previously discussed, service IG investigators are not subject to or consistently trained to CIGIE standards and therefore may not know how to assess their investigations according to these standards. Without receiving case-specific feedback, which relates to the CIGIE standards against which DODIG assessed the investigation and notes any deficiencies, service investigators may not be able to assess their own subsequent investigations. Further, without coordination with the service IGs to ensure that service investigators are receiving case-specific feedback from DODIG, DODIG efforts to improve investigation quality may continue to face challenges. Finally, without case-specific feedback, service IGs may not be able to identify trends in systematic deficiencies or specific CIGIE standards not being met, which otherwise might be corrected in future investigations and incorporated into their feedback to field-level investigators. DODIG and the service IGs have processes for investigators to recuse themselves from investigations, but there is no process for investigators to document whether the investigation they conducted was independent and outside of the chain of command. CIGIE standards state that in all matters relating to investigative work, the investigative organization must be free, both in fact and appearance, from impairments to independence. Impairments to independence include professional or personal relationships that might weaken the investigative work in any way, and preconceived opinions of individuals or groups that could bias the investigation, among others. In the absence of a process for investigators to certify their independence, DODIG has incorporated various questions into its oversight review in order to document the independence of the investigator and to determine whether the investigation was conducted in accordance with CIGIE standards. For example, DODIG oversight investigators indicate whether the investigator was outside the chain of command of the servicemember and responsible management official, which is statutorily required. DODIG’s oversight investigators—of which all but one has prior military experience—stated that they use their experience and knowledge of the service’s organizational structures to determine whether the investigator was outside the chain of command. Oversight investigators further determine on the current version of the oversight worksheet whether the investigator maintained professionalism and demonstrated IG impartiality during interviews. Oversight investigators stated that they can determine whether the investigator was impartial during interviews only if the case has interview transcripts, which the Administrative Investigations Manual instructs them to read if necessary; however, DODIG will accept summarized interviews and does not require that the service IGs provide verbatim transcripts for all interviews. Based on our sample, we estimate that 43 percent of cases closed in fiscal year 2013 have transcripts of interviews with the servicemember alleging reprisal and 26 percent of cases have transcripts of responsible management official interviews. In the absence of interview transcripts, oversight investigators have limited tools to determine whether the investigator demonstrated IG impartiality during interviews. DOD officials stated that their recusal policies and decentralized investigation structure, removing the investigator from the chain of command, adequately address independence and that no further documentation of independence is needed. However, during our case-file review we reviewed oversight worksheets where DODIG oversight investigators had noted potential impairments to investigator objectivity in the report of investigation. For example, on one oversight worksheet, the oversight investigator stated that the report gave the appearance of service investigator bias, and further clarified that the report should state whether the responsible management official’s actions were reasonable and supported by facts, not whether the investigator would have taken the same actions. In addition, on another oversight worksheet the DODIG investigator stated that the investigator’s narrative in the report of investigation contained comments that would bring into question whether the analysis was impartial and unbiased, further noting that there was evidence of bias. Further, one oversight worksheet stated that the investigator was not outside the chain of command, as statutorily required, but that it had no effect on the investigation. DODIG approved these cases without documenting how it reconciled these case deficiencies. We are not questioning DODIG’s judgment in these cases. We noted that the files in these cases did not address the issues identified by the oversight investigator beyond the final approval of the case. However, Standards for Internal Control in the Federal Government provides that internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. Without documenting the basis for their determinations regarding independent decision making, DODIG cannot ensure that such determinations are appropriate. One oversight investigator we interviewed stated that DODIG has received investigations from the service IGs where the investigations show clear signs of bias, even though the investigator was outside the chain of command. According to this investigator, in these instances, DODIG’s options include returning the case for additional investigation, appointing a new investigator, or preparing additional case analysis addressing the bias. Further, some service IG reviews of investigations also noted potential impairments to objectivity. For example, a service IG forwarded a completed investigation to DODIG for approval, noting that the investigators did not appear fair and impartial in a servicemember interview transcript; however, the oversight investigator stated that there was no evidence of bias by the investigating officer. Service IG officials stated that their review of field-level investigations is important because they have received investigations that contain personal opinion and statements that make it appear that the investigator was not impartial. These officials stated that, through their review, they attempt to identify and correct these statements, and that DODIG’s subsequent review of the case should also catch any instances where an investigator did not appear impartial. Service IG officials noted that, because investigators are so close to the investigation, they can become invested in the investigation and that this investment is sometimes evident in reports of investigation. Guidance for documenting independence is included in generally accepted government auditing standards (GAGAS). While these standards apply to audits, they can also provide guidance to service IGs as a best practice on how to document decisions regarding independence when conducting reprisal investigations. Documentation of independence considerations provides evidence of the judgments in forming conclusions regarding compliance with independence requirements. Further, GAGAS notes that an organization should establish policies and procedures in its system of quality control that address independence. While GAGAS states that insufficient documentation of compliance with the independence standard does not impair independence, documentation of independence in a reprisal investigation could improve the quality of DODIG’s investigations. Without a process for investigators to document that the investigation was independent and outside the chain of command, DODIG and the service IGs will be hindered in their efforts to monitor the independence of investigations. DODIG oversight investigators are responsible for assessing the independence of the investigator and the investigation. Absent direction from DODIG to the service IGs to provide certifications that the investigator was independent and outside of the chain of command, DODIG oversight investigators have few mechanisms to determine whether the investigation was independent during the oversight process. With the pending expansion of DODIG’s case management system to the service IGs, the certification process could be incorporated, for example, into the case management system. Further, such a certification process would serve as an accountability mechanism for service IG investigators, should an oversight investigator or service IG official note any potential impairments to objectivity during their reviews of investigations. Finally, certification of investigator independence could decrease the potential for bias in military reprisal investigations and better ensure that servicemembers receive the whistleblower protections provided by law. Whistleblowers play an important role in safeguarding the federal government against waste, fraud, and abuse, and their willingness to come forward can contribute to improvements in government operations. As a result, it is important that DOD have a process for investigating whistleblower reprisal complaints that affected parties have confidence is timely, effective, and impartial. One way in which such confidence can be undermined is if investigations and related communications with the servicemembers are not timely and accurate. Reducing delays in investigations and notifications when the process will take longer than 180 days would provide servicemembers with information that may affect their immediate work environment or personnel actions, which are typically halted during an active investigation, since servicemembers generally do not receive relief from reprisal until DODIG has approved a substantiated investigation. Ultimately, the absence of regular status updates, such as revised case-completion estimates when time frames shift, may discourage servicemembers from coming forward to report wrongdoing. Another area in which DODIG processes are lacking is in data collection and monitoring for oversight of investigations at the service IG level. DODIG has made progress in this regard since our February 2012 report by implementing a new case management system, but it remains under development and, as of March 2015, does not yet meet DODIG’s full reporting needs. Without additional internal guidance to staff on how to use the case management system for real-time case processing, DODIG cannot assure efficient reporting and that the data it collects are up to date and accurate. Absent these actions, along with developing an implementation plan for expansion of the case management system to the service IGs, DODIG will not have complete visibility of service IG workload and timeliness. DODIG also cannot ensure that all military whistleblower reprisal investigations adhere to quality standards. For instance, the complexity of reprisal investigations underscores the need for clear and consistent oversight review procedures and documentation requirements. DODIG took a positive step by establishing a team of investigators that is solely dedicated to the review of service IG investigations. However, without additional guidance regarding how to review service IG investigations, which would help to formalize the oversight process, DODIG cannot ensure that it treats reprisal complaints consistently and with due professional care. In addition, consistency across DODIG and service IG investigations, especially in regard to investigation stages, will be limited without guidance that clarifies the amount of investigative work an investigator is to conduct at each stage and leads to the perception that not all servicemember complaints are treated equally. Additionally, without providing case-specific feedback that includes the criteria DODIG oversight investigators use to assess service investigations, service investigators may be limited in their ability to improve the quality of subsequent investigations. Finally, DOD may not be able to enhance the perception of fairness and increase accountability without taking steps to develop and implement a process for investigators to certify their independence when conducting investigations. Absent these actions, DODIG will be limited in its ability to enhance the effectiveness of its oversight, prepare for the eventual peer review in which senior leadership would like to participate, and ensure that servicemembers receive the whistleblower protections provided by law. To improve the military whistleblower reprisal investigation process and oversight of such investigations, we recommend that the Secretary of Defense work in coordination with the Department of Defense Inspector General (DODIG) to take the following seven actions: develop an automated tool to help ensure compliance with the statutory 180-day notification requirement by providing servicemembers with accurate information regarding the status of their reprisal investigations within 180 days of receipt of an allegation of reprisal; issue additional guidance to investigators on how to use the case management system as a real-time management tool, and update and finalize the draft internal user guidance from 2012 as necessary until the case management system is complete; working in coordination with the service IGs, develop an implementation plan that addresses the needs of DODIG and the service IGs, and defines project goals, schedules, costs, stakeholder roles and responsibilities, and stakeholder communication techniques for expansion of the case management system; issue additional guidance to formalize the DODIG oversight process; direct the services to follow standardized investigation stages and issue guidance clarifying how the stages are defined; ensure that the mechanism it uses for feedback to service investigators includes the criteria against which the investigation was assessed and any deficiencies, and work with the service IG headquarters to ensure that feedback is shared with the service investigators; and develop and implement a process for investigators to document whether the investigation was independent and outside of the chain of command and direct the service IGs to provide such documentation for review during the oversight process. In commenting on a draft of this report, DODIG concurred with each of our seven recommendations. However, DODIG did not agree with the manner in which we presented the findings in the report and raised concerns that we did not include information relating to significant progress made by DODIG since our February 2012 report. DODIG’s comments are reprinted in appendix III. DODIG also provided technical comments, which we considered and incorporated where appropriate. We disagree with DODIG’s characterization of our report’s findings because we included discussion of the improvements cited by DODIG throughout our report. For example, we noted increases in staff levels, DODIG’s development of a new case management system, DODIG’s October 2014 issuance of a military whistleblower reprisal investigations guide, and policy guidance to the service IGs regarding 180-day notification requirements, among others. Further, in its comments, DODIG stated that it takes its role in leading DOD’s whistleblower protection program seriously and has invested significant resources, more so than other federal agencies, to improve the timeliness and quality of its investigations. In addition, DODIG highlighted the volume of complaints that it processes. We agree that DOD’s program is large, and believe that our current recommendations are critical to aid DODIG in attaining its goal of being the model whistleblower protection program in the federal government. Our responses to additional comments made by DODIG on our report’s findings are included at the end of appendix III. In concurring with our first recommendation that DODIG develop an automated tool to help ensure DOD compliance with the statutory 180- day notification requirement, DODIG stated it had already implemented a dashboard in its case management system that identifies investigations pending for 180 days and that it would work toward an even more automated notification process in the future. We believe that an automated tool to help ensure DOD compliance with statutory requirements is needed and that the dashboard alone does not serve this intended purpose. Based on our case file review, we found that in the estimated 53 percent of cases in which DOD sent the required 180-day notification letters for cases closed in fiscal year 2013, the notifications that DOD provided were sent after 180 days. Specifically, we estimated that DOD’s median notification time was on average 353 days after the servicemember filed the complaint, almost twice as long as the 180-day requirement. The dashboard that DODIG uses to track cases does not proactively alert DOD to send the 180-day letter. Importantly, as we stated in our report, DODIG’s case management system did not have record of at least 22 percent of service investigations both open as of September 30, 2014, and closed in fiscal years 2013 and 2014. Without knowledge of these cases, DODIG cannot ensure that the service IGs sent 180-day notification letters for cases taking over 180 days to complete. We believe that an automated tool that proactively alerts DOD to send the required 180-day notification letter for all cases taking longer than 180 day days could help to ensure DOD’s full compliance with statutory notification requirements. In concurring with our second recommendation that DODIG issue additional guidance to investigators on how to use the case management system as a real-time management tool, DODIG stated that we misrepresented DODIG’s focused effort to migrate paper-based 2013 data into a new electronic system and correct data deficiencies in order to ensure data reliability. We disagree. In our report, we note that DODIG officials told us that the case management system is to serve as a real- time complaint tracking and investigative management tool for investigators. Further, in its comments, DODIG highlights the guidance and training it has implemented related to its case management system. During our case file review, we found that personnel uploaded key case documents to the case management system after DODIG had closed the case in 77 percent of cases closed in fiscal year 2013 and made changes to case variables in 83 percent of cases in 2014. DODIG staff made these changes at least 3 months after case closure and at least a year after DODIG implemented the database in December 2012, indicating that it was not being used for real-time case tracking for cases closed in fiscal year 2013. Further, despite DODIG’s stated efforts to train investigators and ensure data consistency, we found significant instances of coding errors where DODIG personnel were coding partially completed service investigations as full investigations. Specifically, we estimate that for cases closed in fiscal year 2013, 43 percent of cases that DODIG investigators coded as fully investigated were only partially investigated. As a result, we believe that additional guidance on how to use the case management system may help ensure that DODIG has awareness of the real-time status of cases and the reliability of DODIG’s data. In concurring with our third recommendation that DODIG work in coordination with the service IGs to develop an implementation plan for the expansion of the case management system, DODIG stated that we did not acknowledge the steps it has already taken to develop an implementation plan. We disagree. As we note in the report, DODIG officials stated during our review that they were developing an implementation strategy for the expansion of the case management system, but that they did not have an implementation plan. DODIG stated that it has taken additional actions since January 2015 to plan for the expansion of the case management system, such as developing a demonstration environment to define the requirement gaps. We believe that these actions are positive steps and that they will provide a strong foundation for the development of an implementation plan, which could help position DODIG to monitor the case management system expansion and measure project success. In concurring with our fourth recommendation that DODIG issue additional guidance to formalize the DODIG oversight process, DODIG stated that its investigations manual already provides formal guidance to DODIG investigators for conducting oversight reviews of service IG military reprisal investigations and that within the next 90 days it will develop additional guidance on conducting oversight reviews, such as how to evaluate and document deficiencies, including those that did not affect the overall outcome of the investigation. We disagree that DODIG’s investigations manual already provides formal oversight guidance. We reviewed the 5-page chapter in DODIG’s manual on oversight of service IG investigations, and we found that it does not detail the steps and documentation requirements of an oversight review, is not specific to military whistleblower reprisal investigations, and does not state what deficiencies are substantive and would affect the outcome of an investigation. We believe that DODIG’s stated plan to develop additional guidance, including how to evaluate and document deficiencies, could better ensure the consistency of DODIG’s oversight reviews and that all reprisal complaints receive due professional care. In concurring with our fifth recommendation that DODIG direct the services to follow standardized investigation stages and issue guidance clarifying how the stages are defined, DODIG stated that its October 2014 military whistleblower reprisal investigations guide describes DODIG’s intake process and that its Directive 7050.06, which was reissued in April 2015, establishes a timeline for completing the intake process in 30 days. We disagree that the guidance provides the needed instructions for investigators. We acknowledged in the report that DOD’s issuance of updated guidance is a positive step; however, DODIG describes its guide as a best practice for conducting military reprisal intakes and investigations and does not explicitly direct the services to follow DODIG’s preferred stages. In addition, it does not discuss the service IGs’ use of preliminary inquiries to dismiss cases after only a partial investigation, a practice DODIG stated it ended 3 years ago. We believe that standardized investigative stages may better ensure consistent program implementation and that all servicemember complaints are treated equally. In concurring with our sixth recommendation that DODIG ensure that feedback to service investigators includes the criteria against which the investigation was assessed and any deficiencies, and that feedback is shared with the service investigators, DODIG stated that within the next 60 days it will resume its prior practice of sending oversight worksheets to the service IGs. Those worksheets will include the criteria against which the service’s intake or investigation was reviewed as well as clear explanations of deficiencies and whether they affected the outcome of the case. DODIG also stated that it will work with the services to develop a mechanism by which results will be shared with service investigators. We believe that the steps DODIG noted in its response could improve the quality of future service IG investigations and better ensure that investigative reports meet the CIGIE standards that DODIG has incorporated into its oversight review. In concurring with our seventh recommendation that DODIG develop and implement a process for investigators to document whether the investigation was independent and outside of the chain of command, DODIG stated that within the next 60 days it will develop and implement such a process. Specifically, it stated that the process will require service investigators to attest in writing that they are outside the immediate chain of command of both the servicemember alleging reprisal and the alleged responsible management officials. Although such an attestation is a positive step, we believe that the service investigators should also attest to whether the investigation was independent. DODIG oversight worksheets we reviewed noted impairments to investigator objectivity in reports of investigation even though the service investigator was outside of the chain of command. We believe that an attestation that the investigation is both independent and outside of the chain of command could help serve as an accountability mechanism for service IG investigators and decrease the potential for bias in military whistleblower reprisal investigations. We are sending copies of this report to the Secretary of Defense; the Department of Defense Inspector General (DODIG); the Inspectors General (IG) of the Air Force, the Army, the Marine Corps, and the Navy; and appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. To address our objectives, we used two primary sources of data, including (1) closed military whistleblower reprisal case data from the Department of Defense Office of Inspector General’s (DODIG) case management system and (2) a randomly selected sample of DODIG’s closed military whistleblower reprisal case files. DODIG provided us with information for all military whistleblower reprisal cases closed from October 1, 2011, through September 30, 2014, and all cases open as of October 1, 2014. We were unable to report the fiscal year 2012 data because DODIG transitioned to a new case management system in December 2012, and data from fiscal year 2012 were not reliable as a result of the data migration, according to DODIG officials. In addition, DODIG officials told us that they verified and corrected data as necessary for all cases closed in fiscal years 2013 and 2014 because the case management system was new and investigators had not been consistently recording information. We assessed the reliability of DODIG’s fiscal years 2013 and 2014 data—by reviewing related documentation, interviewing knowledgeable officials, and comparing selected fields, such as open and closed dates, with case file records from our sample—and concluded that the data were sufficiently reliable for reporting the average lengths of investigations. Further, we used the data for cases closed in fiscal year 2013 to select the sample for our case-file review, discussed below. We chose cases from this period for the file review because of DODIG’s case management system transition in December 2012 and statements from DODIG officials that data from cases closed in the old case management system were not as complete as data from cases closed in the new case management system. We also chose this period because the National Defense Authorization Act for Fiscal Year 2014, effective December 26, 2013, expanded the amount of time a servicemember has to report a reprisal allegation from 60 days to 365 days. We selected a stratified random sample of 135 cases from the 538 cases closed in fiscal year 2013. We stratified the population into six strata by combining three categories of case status and two categories of investigation status (see table 5 below). We calculated the sample sizes to achieve a desired precision of plus or minus 10 percentage points or fewer for a percentage estimate of the total population (N=538) at the 95 percent confidence level. We then adjusted the sample sizes to achieve a desired precision of plus or minus 10 percentage points or fewer for a percentage estimate at the 95 percent confidence level for DODIG Oversight cases (N=344, strata 3 and 4) and Fully Investigated cases (N=203, strata 1, 3, and 5). During the course of our review, we removed 11 out-of-scope cases, which reduced the original sample size from 135 to 124, because we found that 2 of the cases were open, 1 of the cases was classified and had limited documentation to review, and 8 cases were investigations of improper mental health examinations and not reprisal. This reduced sample of 124 cases is generalizable to the estimated population of in- scope cases. We generalized the results of our sample to the estimated population of 498 cases DODIG closed in fiscal year 2013. All estimates of percentages presented in this report have a margin of error of plus or minus 10 percentage points or fewer, unless otherwise noted. Further, all estimates of medians and averages presented in this report have a relative error of plus or minus 20 percent of the estimate, unless otherwise noted. To determine the extent to which the Department of Defense (DOD) has met statutory notification requirements and internal timeliness requirements for completing military whistleblower reprisal investigations, we calculated the timeliness of cases using case data from DODIG’s case management system for military whistleblower reprisal cases closed in fiscal years 2013 and 2014 and compared the average timeliness to the regulatory 180-day requirement. We removed one closed case from the timeliness calculations because the record produced a negative case processing time because the closed date preceded the open date. In addition, for all cases that were open as of September 30, 2014, we analyzed how long the cases had been open, according to the fiscal year in which the complaints were received. To determine the extent to which DOD met the statutory requirement to notify servicemembers in cases lasting longer than 180 days about delays in the investigation in fiscal year 2013, we reviewed the 124 case files in our sample for evidence that DOD had sent the required letter in cases lasting longer than 180 days. For cases where there was evidence that DOD had sent the required letter, we recorded the reasons provided for the delay as well as the estimated completion date. We calculated the median estimated time frame in the letters and compared this to the median completion date for these cases to determine the accuracy of DOD’s estimated time frames. In order to assess the reliability of DODIG’s data, we used case file documentation to determine the open and close dates of the 124 cases in our sample and calculated total case time for each case. We then compared the total case time we recorded for the sample cases to the total case time for those cases in DODIG’s data and we found a mean difference of 2 days. We further assessed the data through discussions with officials responsible for the data and concluded that the data were sufficiently reliable for reporting the average lengths of investigations. Further, we reviewed relevant documents including 10 U.S.C. § 1034, as amended, and its implementing directive on military whistleblower protections, DOD Directive 7050.06, Military Whistleblower Protection (July 23, 2007). After we sent our draft report for comment, DODIG issued an updated Directive on April 17, 2015, which we also reviewed. Finally, we interviewed officials about methods for tracking investigations and processes for sending required notifications to servicemembers that allege reprisal. We also collected relevant documentation, such as standard operating procedures and investigative guidance from DODIG, and the service Inspectors General (IG) for the Air Force, the Army, the Marine Corps and the Navy. We also spoke with officials from DODIG’s Information Systems directorate to determine which variables to request from DODIG’s case management system. To determine the extent to which DODIG’s whistleblower case management system supports oversight of the military whistleblower reprisal program, we obtained and analyzed closed case data from each of the service IGs for cases closed from fiscal year 2012 through fiscal year 2014. We assessed the reliability of service IG data from fiscal years 2013 and 2014—by reviewing related documentation and interviewing knowledgeable officials—and concluded that the data were sufficiently reliable for our purposes. We compared selected variables for all cases by matching DODIG’s data to the service IG data to identify duplicate cases and missing information, and to determine whether DODIG has visibility of all ongoing and closed military whistleblower reprisal cases. We selected the variables present in both DODIG’s and the service IGs’ data to compare for matching cases in consultation with DODIG and service officials, and those variables include servicemember name, case identifiers, open date, and closed date. Further, we interviewed DODIG officials responsible for the development of the case management system and the proposed expansion of the case management system to the service IGs and collected supporting documentation. We also reviewed DOD memorandums regarding the case management system expansion and cost information for the next phase of case management system development and compared these documents to relevant program management criteria. In addition, we interviewed officials from DODIG’s Administrative Investigations component as well as its Whistleblower Reprisal Investigations and Investigations of Senior Officials directorates, and service IG officials regarding the case management system expansion. To determine the extent to which DOD has processes to ensure oversight of military whistleblower reprisal investigations conducted by the service IGs, we used our stratified random sample of 124 case files retained by DODIG for military whistleblower reprisal cases that DODIG closed from October 1, 2012, through September 30, 2013. Based on our review of whistleblower reprisal investigation policies and procedures and quality standards for investigations established by the Council of the Inspectors General on Integrity and Efficiency (CIGIE), we created a data-collection instrument to identify the key characteristics of whistleblower reprisal cases, determine the reliability of various fields in the case management system, and assess the completeness and quality of files. We also developed a standard approach to electronically review files, using DODIG’s new case management system, to ensure we reviewed all cases consistently. For example, for all cases, we reviewed the original complaint followed by the report of investigation and interview transcripts, among other things. We refined this data-collection instrument and our approach by first reviewing 12 pilot case files selected by DODIG that were not part of the 135 originally identified in the sample. Specifically, the pilot consisted of cases that DODIG approved in the first three quarters of fiscal year 2014, including 3 cases investigated by DODIG, 3 cases investigated by the Army, 2 cases investigated by the Air Force, 2 cases investigated by the Navy, and 2 cases investigated by the Marine Corps. Of those 12 cases, 11 were fully investigated and 6 were substantiated. After the pilot, our methodology for reviewing the randomly sampled cases required each case to be reviewed first by one analyst and then reviewed by a second analyst who noted any disagreement with the first analyst’s assessment. Analysts discussed the areas of disagreement and resolved any disagreement by identifying and reviewing supporting documentation in the case files. Further, two GAO investigators with professional investigative experience reviewed a portion of the sample and concurred with the analysts’ assessment of the cases, in accordance with CIGIE guidelines for quality-assurance reviews. We did not question DODIG’s judgment in these cases. To assess case-file completeness, we reviewed DODIG’s process, 10 U.S.C. § 1034, directive, and other guidance and consulted with DODIG officials and identified 13 elements to include in our case-file review. These 13 elements support the conclusions reached in the case, indicate compliance with the law or directive, or manage the internal communication not specifically outlined by law or directive. The 13 elements we included for our case file review are the following: 1. notification to DODIG from the service IG that received the complaint, 2. evidence supporting the recommended outcome, 4. report of investigation or other written product, 6. interview with servicemember, 7. interview with responsible management official, 8. DODIG oversight worksheet, 9. correspondence between DODIG and the servicemember regarding investigations taking longer than 180 days, 10. correspondence between DODIG and the Secretary of Defense regarding investigations taking longer than 180 days, 11. record of corrective action taken, 12. correspondence between DODIG and the service IGs regarding the final case outcome, and 13. correspondence between DOD and the servicemember regarding the final outcome of the case. Some of these elements included specific documents. For example, the DODIG oversight worksheet (item 8 above) was a specific document. Other elements could be reflected in multiple documents. For example, the evidence supporting the recommended outcome (item 2 above) could be in a larger report, be in a summary, or be its own document. We determined the completeness of each case file selected in our sample individually since not all 13 elements were necessary in every case. For example, some of the 13 elements would only need to be present in a file if an investigation was conducted by a service IG or was a full investigation. We adjusted the required number of elements based on the specific circumstances of each case and calculated completeness based on that adjusted baseline. We categorized the case files by the average number of elements missing for each type of case, dismissed DODIG intakes, service IG preliminary inquiries, service IG full investigations, and DODIG full investigations. We also interviewed investigators and supervisors on DODIG’s oversight team and officials at each of the service headquarters IGs. In addition, we interviewed six field-level investigators from the Army, the Navy, and the Air Force IGs regarding required training, available guidance, and investigative processes, including assessing independence. We used data provided by each of the services for cases closed in fiscal year 2014 to select investigators for interviews. We used a simple random sampling technique to select investigators for interviews. We selected 12 investigators from the 216 investigations closed by the Army, 10 investigators from the 35 investigations closed by the Navy, and 10 investigators from the 110 investigations closed by the Air Force. Since field-level service IG investigators typically rotate every 2 to 3 years, we were able to contact and speak with two investigators from each service IG. In addition, we reviewed training materials, guidance, and requirements for investigators from DODIG and each of the service IGs as well as their processes for assessing investigator independence. We also attended training sessions related to conducting military whistleblower reprisal investigations at DODIG and the Army IG as well as 2 DODIG Administrative Investigations training symposia, which contained sessions on whistleblower reprisal investigations, and interviewed an official from CIGIE’s Advanced Training Institute. Additionally, we compared DOD’s independence processes to CIGIE quality standards for investigations and Generally Accepted Government Auditing Standards (GAGAS). We conducted this performance audit from April 2014 to May 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This appendix provides information on the characteristics of military whistleblower reprisal cases based on our case file review of 124 cases closed from October 1, 2012, through September 30, 2013, as well as data from the Department of Defense Office of Inspector General’s (DODIG) case management system for cases closed in fiscal years 2013 and 2014. Generally, the service affiliations of the servicemembers that alleged reprisal did not match the overall proportions in the military population. See figure 3 for a comparison of the servicemember population proportion by service compared to the proportion of reprisal cases closed. Through our file review of cases closed in fiscal year 2013, we estimate that the majority of servicemembers filed reprisal complaints with a service Inspector General (IG) (70 percent). Servicemembers also filed reprisal complaints with the DODIG Hotline (23 percent) and through Members of Congress (6 percent). According to Department of Defense (DOD) Directive 7050.06, a servicemember who makes or prepares to make a protected communication is a whistleblower. Based on our review of case files closed in 2013, we estimate that the primary reasons for making a protected communication are to report allegations of a violation of law or regulation (49 percent), abuse of authority (39 percent), or a general communication to the IG (23 percent). Other reasons for making a protected communication included funds or resource waste (14 percent), public health or safety danger (11 percent,) and sexual assault (8 percent), among others. DOD officials told us that regulations cover virtually every aspect of military life, including how to conduct personnel ratings, so servicemembers often cite violations of regulations in their complaints. About 40 percent of cases in our sample included a protected communication regarding a personnel regulation violation. Figure 4 shows the reasons servicemembers made protected communications by frequency. Further, based on our case file review, we estimate that the primary authorized recipients of protected communications for cases closed in fiscal year 2013 were the chain of command (62 percent), Inspectors General (53 percent), and Members of Congress (18 percent). DOD officials told us that the inclusion of the chain of command in the list of authorized protected communication recipients has resulted in an increase in the number of servicemembers that qualify as whistleblowers because reporting issues to the chain of command is a standard military procedure. Figure 5 shows the authorized recipients to whom servicemembers made protected communications by frequency. A whistleblower reprisal complaint must also include an allegation that an action was taken in reprisal against a servicemember. DOD Directive 7050.06 defines reprisal as taking or threatening to take an unfavorable personnel action, or withholding or threatening to withhold a favorable personnel action, for making or preparing to make a protected communication. Based on our file review of cases closed in fiscal year 2013, we estimate that the most common forms of reprisal alleged by servicemembers were that they received a poor performance evaluation (44 percent), disciplinary action (39 percent), or an unfavorable assignment or reassignment (27 percent). Figure 6 shows the frequency of the various types of personnel actions. DODIG evaluates cases and generally closes them based on the answers to four questions, which investigators use to determine whether a case has all of the elements of reprisal. Specifically: (1) Did the servicemember make or prepare to make a protected communication, or was the servicemember perceived as having made or prepared to make a protected communication? (2) Was an unfavorable personnel action taken or threatened against the servicemember, or was a favorable personnel action withheld or threatened to be withheld following the protected communication? (3) Did the responsible management official have knowledge of the servicemember’s protected communication or perceive the servicemember as making or preparing to make a protected communication? (4) Would the same personnel action have been taken, withheld, or threatened absent the protected communication? Based on our review of randomly selected case files closed in fiscal year 2013, we estimate that the most common reason for closing a case was that DODIG determined that the responsible management official would have taken the personnel action absent the protected communication (question 4—37 percent), which means that the servicemember’s protected communication did not have an effect on the responsible official’s decision to take the personnel action. DODIG also closed cases because the servicemember did not make a protected communication (question 1—4 percent), there was no personnel action (question 2—9 percent), or the responsible management official who took the personnel action had no knowledge that the servicemember made or prepared to make a protected communication (question 3—3 percent). Additional reasons DODIG closed cases included timeliness—the servicemember did not file a reprisal complaint within 60 days of gaining knowledge of the personnel action—nonresponsive servicemembers, and withdrawals, See figure 7 for DODIG’s reasons for closing among other reasons.military reprisal cases by frequency. Further, based on our case-file review of cases closed in fiscal year 2013, we estimate that the service IGs closed the majority of cases in fiscal year 2013 (70 percent) after conducting a preliminary inquiry and prior to a full investigation. Our analysis of DODIG data on military whistleblower reprisal cases closed in fiscal year 2014 shows that DODIG substantiated 9 percent of the cases that were fully investigated by DODIG investigators. In addition, our analysis shows that the service IGs substantiated 6 percent of cases that proceeded past the intake phase. DODIG officials stated that they calculate substantiation rates by the number of cases substantiated out of the number of cases fully investigated; however, as discussed in the report, we are unable to report on the total number of cases fully investigated by the service IGs because DODIG’s data were not reliable for this purpose. As such, we report the service IGs’ substantiation rates out of the number of cases that proceeded to further investigation after meeting the general intake requirements—a personnel action following a protected communication. See table 6 for fiscal year 2013 and 2014 substantiation rates. The following are GAO’s comments on the Department of Defense Inspector General’s (DODIG) letter dated May 1, 2015, in addition to our evaluation of agency comments on page 50. 1. We disagree with DODIG’s statement comparing the timeliness of its intake process because we were not able to compare the timeliness of cases by case type in our 2012 report with this report due to DODIG data limitations. Specifically, in our 2012 report, we found that DODIG’s data were not reliable for the purposes of reporting investigation lengths and therefore used sample data to report the timeliness of cases DODIG closed between January 1, 2009 and March 31, 2011. We reported on the number of cases closed before full investigation and cases that were full investigations, which we determined by reviewing the case file documentation. In this report, we found DODIG’s timeliness data reliable for our purposes of reporting the average lengths of investigations; however, we were not able, using DODIG’s data, to distinguish between the number of cases that were fully investigated by the service IGs and the number of cases that the services closed with some investigative work, but prior to a full investigation. DODIG’s data were not reliable for these purposes due to DODIG coding errors. 2. We disagree with DODIG’s statement that it met statutory notification requirements in the majority of closed cases because it did not always meet those requirements. Specifically, in 2012, we found that DOD had stopped providing any notifications to servicemembers. In 2015, we found that DOD notified servicemembers about the status of investigations that took longer than 180 days in an estimated 53 percent of the cases that required notification. In those instances where the letters were provided to servicemembers, we estimated that DOD’s median notification time was on average 353 days after the servicemember filed the complaint, almost twice as long as the 180-day requirement. We acknowledge that DOD’s decision to reestablish the practice of sending 180-day notification letters is a positive step; however, we continue to believe that notifying servicemembers about half of the time is not in accordance with statutory requirements and that DOD should send the letters within 180 days of receipt of an allegation of reprisal, not on average of 353 days after receipt. 3. We disagree with DODIG’s statements regarding our characterization of its case management system, because we concluded that DODIG does not have complete oversight of all service reprisal investigations. Specifically, a large amount of detailed information about the cases, such as investigative events, resides in the services’ case management systems. Further, we found that DODIG’s system did not have record of at least 22 percent of service investigations both open as of September 30, 2014, and closed in fiscal years 2013 and 2014. DODIG is responsible for the oversight of these cases. In addition, we believe that DODIG’s agile development of the case management system—and the large gaps between development phases—may be the cause of some of the issues we found. DODIG officials told us that the length between phases of development was longer than originally intended by DODIG, and the system still needs to refine some of its capabilities, such as aggregating and extracting data for reporting purposes. DODIG intended to complete the system in February 2014 and still has not done so over a year later. Further, we found that DODIG made changes to its data in March and April of 2014, after it was notified of our audit. We believe that DODIG should have been making sure its data were reliable on an ongoing basis. DODIG also stated that we did not address its approaches for ensuring data reliability; however, we did include a discussion of some of these approaches in our report, such as its dashboards to identify errors, and its quarterly quality assurance processes, on pages 24 and 37. Finally, DODIG listed system capabilities, such as the ability to track overall case age, which we incorporated into the report and about which we noted limitations where relevant. 4. We disagree with DODIG’s statements regarding feedback it provides to service IG investigators because DODIG’s Council of the Inspectors General on Integrity and Efficiency (CIGIE) trainings do not reach all field-level investigators, as we stated in our report. In addition, the sample case-closure memorandum that DODIG provided to us did not contain such criteria. Further, in our report, we define the criteria against which DODIG oversight investigators assess service IG investigator independence. However, we found that in the absence of interview transcripts, which were present for servicemember interviews in only 43 percent of cases closed in fiscal year 2013, oversight investigators have limited tools to determine whether the investigator demonstrated IG impartiality during interviews. 5. We disagree with DODIG’s comment that we did not include information related to DODIG’s progress since 2012 because we addressed DODIG’s stated improvements on the following pages in our report: (1) DODIG’s staffing increases, p. 19; (2) new case management system, p. 21; (3) data clean-up to ensure data reliability, p. 25; (4) issuance of policy guidance to the service IGs regarding the 180-day notification requirements, p.11; (5) Administrative Investigations manual, pp. 42; (6) issuance of October 2014 military whistleblower reprisal investigations guide, p. 38; and (7) reissuance of DOD Directive 7050.06. The directive was issued on April 17, 2015, after we sent our draft report to DOD for agency comments, and we incorporated it into our final report as necessary, p. 52. However, the directive dated July 2007 was in place during the scope of our review and, as such, we used it for criteria where applicable. In addition to the contact named above, Lori Atkinson (Assistant Director), James Ashley, Tracy Barnes, Gary Bianchi, Molly Callaghan, Sara Cradic, Cynthia Grant, Robert Graves, Christopher Hayes, Erica Reyes, Mike Silver, Amie Steele, and Erik Wilkins-McKee made significant contributions to this report. Whistleblower Protection: Additional Actions Needed to Improve DOJ’s Handling of FBI Retaliation Complaints. GAO-15-112. Washington, D.C.: January 23, 2015. Whistleblower Protection Program: Opportunities Exist for OSHA and DOT to Strengthen Collaborative Mechanisms. GAO-14-286. Washington, D.C.: March 19, 2014. Whistleblower Protection: Actions Needed to Improve DOD’s Military Whistleblower Reprisal Program. GAO-12-362. Washington, D.C.: February 22, 2012. Tax Whistleblowers: Incomplete Data Hinders IRS’s Ability to Manage Claim Processing Time and Enhance External Communication. GAO-11-683. Washington, D.C.: August 10, 2011. Criminal Cartel Enforcement: Stakeholder Views on Impact of 2004 Antitrust Reform Are Mixed, but Support Whistleblower Protection. GAO-11-619. Washington, D.C.: July 25, 2011. Whistleblower Protection: Sustained Management Attention Needed to Address Long-Standing Program Weaknesses. GAO-10-722. Washington, D.C.: August 17, 2010. Defense Contracting Integrity: Opportunities Exist to Improve DOD’s Oversight of Contractor Ethics Programs. GAO-09-591. Washington, D.C.: September 22, 2009. Whistleblower Protection Program: Better Data and Improved Oversight Would Help Ensure Program Quality and Consistency. GAO-09-106. Washington, D.C.: January 27, 2009. Justice and Law Enforcement: Office of Special Counsel Needs to Follow Structured Life Cycle Management Practices for Its Case Tracking System. GAO-07-318R. Washington, D.C.: February 16, 2007. U.S. Office of Special Counsel: Strategy for Reducing Persistent Backlog of Cases Should Be Provided to Congress. GAO-04-36. Washington, D.C.: March 8, 2004. The Federal Workforce: Observations on Protections From Discrimination and Reprisal for Whistleblowing. GAO-01-715T. Washington, D.C.: May 9, 2001. Whistleblower Protection: VA Did Little Until Recently to Inform Employees About Their Rights. GAO/GGD-00-70. Washington, D.C.: April 14, 2000.","Whistleblowers play an important role in safeguarding the federal government against waste, fraud, and abuse. However, reporting wrongdoing outside the chain of command conflicts with military guidance, which emphasizes using the chain of command to resolve problems. Whistleblowers who make a report risk reprisal from their unit, such as being demoted or separated. DODIG is responsible for conducting and overseeing military whistleblower reprisal investigations. GAO was asked to examine DOD's oversight of military whistleblower reprisal investigations. This report examines the extent to which (1) DOD met statutory notification and internal timeliness requirements for completing military whistleblower reprisal investigations, (2) DODIG's whistleblower case management system supports oversight of reprisal investigations, and (3) DOD has processes to ensure oversight of service IG-conducted reprisal investigations. GAO analyzed DODIG and service IG data for cases closed in fiscal years 2013 and 2014 and cases open as of September 30, 2014, and reviewed a generalizable random sample of 124 military reprisal cases closed in fiscal year 2013. The Department of Defense (DOD) did not meet statutory military whistleblower reprisal 180-day notification requirements in about half of reprisal investigations closed in fiscal year 2013, and DOD's average investigation time for closed cases in fiscal years 2013 and 2014 was 526 days, almost three times DOD's internal 180-day requirement. In 2012, GAO made recommendations to improve investigation timeliness, and DOD has taken some actions to address those recommendations. However, based on a random sample of 124 cases, GAO estimated that there was no evidence that DOD sent the required notification letters in about 47 percent of the cases that DOD took longer than 180 days to close in fiscal year 2013. For cases in which DOD sent the required letter, GAO estimated that the median notification time was about 353 days after the servicemember filed the complaint, and on average the letters significantly underestimated the expected investigation completion date. DOD does not have a tool, such as an automated alert, to help ensure compliance with the statutory notification requirement to provide letters by 180 days informing servicemembers about delays in investigations. Without a tool for DOD to ensure that servicemembers receive reliable, accurate, and timely information about their investigations, servicemembers may be discouraged from reporting wrongdoing. DOD's Office of Inspector General's (DODIG) newly developed case management system, which it established to improve monitoring, is separate from the service IGs' systems, limiting DODIG's ability to provide oversight of all military reprisal investigations. GAO found that DODIG's system did not have a record of at least 22 percent of service-conducted reprisal investigations that were closed in fiscal years 2013 and 2014 and investigations open as of September 30, 2014. DODIG officials stated that they plan to expand DODIG's case management system to the service IGs by the end of fiscal year 2016 to improve DODIG's visibility over investigations. However, DODIG does not have an implementation plan for the expansion, and service IG officials stated that they have unique requirements that they would like to have incorporated into the system prior to expansion. Expanding the case management system to the service IGs without developing an implementation plan that, among other things, addresses the needs of both DODIG and the service IGs, puts DOD at risk of creating a system that will not strengthen its oversight of reprisal investigations. DOD does not have formalized processes to help ensure effective oversight of military whistleblower reprisal investigations conducted by service IGs. DODIG established an oversight investigator team to review service IG investigations, but it has provided oversight investigators with limited guidance on how to review or document service IG investigations. Specifically, GAO estimated that for about 45 percent of service investigations closed in fiscal year 2013, the oversight worksheets were missing narrative to demonstrate that the oversight investigator had thoroughly documented all case deficiencies or inconsistencies. GAO also found that these files did not include documentation of DOD's analysis of the effect of noted deficiencies on the investigation's outcome because DOD has provided limited instruction on how to review service IG cases. Without additional guidance on oversight review procedures and documentation requirements to formalize the oversight process, it will be difficult for DOD to ensure that reprisal complaints are investigated and documented consistently. GAO recommends that DOD develop a tool to help ensure compliance with the statutory notification requirement, develop an implementation plan for expanding DODIG's case management system, and issue guidance governing the oversight process, among other things. DOD concurred, but raised issues with GAO's presentation of its findings. GAO disagrees and addresses these issues in this report."